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HSBC Bank Malta p.l.c.
Annual Report and Accounts 2021
The HSBC Group
HSBC Bank Malta p.l.c. is a member of the HSBC Group, whose
ultimate parent company is HSBC Holdings plc. Headquartered
in London, HSBC Holdings plc is one of the largest banking and
financial services organisations in the world. The HSBC Group’s
international network is spread across 64 countries and
territories in Europe, Asia, North America, Latin America, and the
Middle East and North Africa.
HSBC Bank Malta p.l.c.
Registered in Malta: C3177
Registered Office and Head Office:
116 Archbishop Street
Valletta VLT 1444
Malta 
Telephone: 356 2380 2380
www.hsbc.com.mt
HSBC Holdings plc
Registered Office and Group Head Office:
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: 44 020 7991 8888
www.hsbc.com
Contents
Page
Chairman’s Statement
2
Chief Executive Officer’s review
Board of Directors and Company Secretary
Executive Committee and Head of Internal Audit
Report of the Directors
Directors’ Responsibilities Statement
Statement of compliance with the Code of Principles of Good Corporate Governance
Remuneration Report
Income statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes on the financial statements
Five-Year comparison: Income statements and statements of comprehensive Income
Five-Year comparison: Statements of financial position
Five-Year comparison: Statements of cash flows
Five-Year Comparison: Accounting ratios
Branches and offices
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
1
Chairman’s Statement
John Bonello, HSBC Malta Chairman
2021 has been another challenging year for our economy due largely to the pandemic. The appearance of the Omicron variant of
Covid-19 towards the end of the year put paid to a feeling that our economy, in particular the tourism sector, was through the worst.
Inflation, much of it imported, is rearing its head in no uncertain terms, global supply problems persist, and geo-political tensions are not
helping and it remains impossible to predict with any certainty when our economy will recover from the consequences of the pandemic.
That said, travel restrictions seem to be gradually lifting and the appetite of people to travel is increasing. Hopefully that will be of benefit
to the important tourism and associated sectors. Following the advice of our Health Authorities it is clear that achieving the maximum
effectiveness of our national inoculation programme remains essential to the recovery of our economy.
It has been an equally challenging year for our bank. The negative interest rate environment has persisted and all evidence suggests that
it will not change materially in the near future for the Euro. We are still facing reducing returns on our investments and increased costs as
we continue to build a safer and more digitalised bank. The cautious and conservative stance we took last year with regards to provisions
on our loan book has meant that there was not the need for further exceptional Covid-19 related provisions in 2021. This has had a
positive effect on our results and given our strong capital position I am pleased that our bank is proposing a dividend of 45% of the
reported profit after tax.
Going forward it is crucial that the national effort to combat financial crime effectively, both at institutional and enterprise levels,
continues at pace. In 2021 our country had the misfortune to find itself on the so-called FATF Grey List. Being taken off that Grey List
must be one of our country’s main priorities and everybody must play their part – not just the authorities. HSBC’s part in this will be to
continue to focus on being a safe and compliant bank working to the highest international standards and, at the same time, retaining our
commitment to pursue safe growth.
Our bank is committed to making our operations here in Malta carbon neutral by 2030 and to focus on helping our customers to do the
same. For the benefit of future generations, it is essential that we all strive to achieve the ambitious targets set at COP26 in Glasgow last
year if we are to prevent catastrophic climate events in the next couple of decades.
Results
The reported profit before tax for the year ended 31 December 2021 was €26.9m. This represents an increase of €16.4m when compared
with the prior year. The bank’s improvement in performance was driven by a small release of expected credit losses compared to
significant charges booked in 2020 as a result of the Covid-19 pandemic and the comparatively worse market outlook at the time. In 2021
the underlying results of the insurance company were impacted positively by an improvement in the market value of its investments. Our
cost base increased in 2021 as a result of a restructuring provision, tighter regulatory monitoring, increased regulatory fees and
continued investment in digitalised solutions.
The adjusted profit before tax increased by €19.2m, or 184% compared to 2020. Whilst there were no notable items in 2020, the adjusted
profit before tax for 2021 excluded a restructuring provision of €2.8m. More details on the financial results can be found in the CEO’s
review.
Profit attributable to shareholders amounted to €17.8m, resulting in earnings per share of 4.9 cent compared with 2.1 cent in 2020.
The bank’s capital ratios continued to improve with CET1 increasing from 18.0% to 18.4% and the total capital ratio improving from
20.7% to 21.1%. The bank continues to maintain a strong capital base and is fully compliant with the regulatory capital requirements.
Whilst we continue to strengthen our capital base, we recognise the importance of dividends to our shareholders. As stated above, the
Board has thus recommended a dividend pay-out of 45% on reported profits after tax. The final gross dividend will be 3.42 cents per
share (2.22 cents per share net of tax).
Chairman’s Statement
2
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
From left: Charlotte Cilia, HSBC Malta CFO, John Bonello, HSBC Malta Chairman, Simon Vaughan Johnson, HSBC Malta CEO
Our regulatory environment
During the course of 2021, the focus on prudential risk management by the regulatory and supervisory authorities continued, focusing in
the large part on the longer-term impact of Covid-19 on the financial services industry. Despite the challenges encountered as a result of
the Covid-19 pandemic, the bank has continued to successfully manage its prudential risk in a market which remains materially impacted
by negative interest rates and significant cost pressures emanating from heightened compliance and risk management activities. In the
course of 2021, the bank’s business model remained aligned to the principle of safe growth, strict but safer prudential risk buffers and
robust compliance standards.
The regulatory engagement with the bank’s principal regulators has continued in a transparent manner, covering various risk themes and
assessments which were undertaken as a result of the continued impact of Covid-19. During this period regulatory engagement was
mainly focused on ensuring that governance and prudential risk management structures, procedures and internal controls are operating
effectively, with a renewed and enhanced focus by the local regulators on the area of Financial Crime. This work continues to be pivotal
to the regulators’ supervisory evaluation process.
The Regulatory Development Programme of the bank has progressed on a number of new and enhanced requirements relating to the
Payment Services Directive II (‘PSD II’), Sustainable Finance Disclosure Regulation (‘SFDR’) and the Shareholders’ Rights Directive II
(‘SRD II’). Continued compliance with the Central Bank of Malta Directive on Moratoria on Credit Facilities in Exceptional Circumstances
(‘CBM Directive 18’), in response to Covid-19, has been ensured, whilst the new Central Bank of Malta Directive on the Use of Cheques
and Bank Drafts (‘CBM Directive 19’), was implemented within the required timeframes. This Directive introduced a set of rules and
regulations on the use of paper-based instruments in Malta to regulate the use of such instruments due to their inefficient nature, high
processing costs and Anti-Money Laundering (AML) risks.
Throughout 2021, the bank remained in close engagement with regulators and industry bodies during the consultation and ongoing
implementation processes of other regulatory changes, such as the FIAU Implementing Procedures. The bank will continue to observe
and monitor all of the upcoming relevant regulatory developments in order to fully adhere to its legal and regulatory obligations, and to
contribute to the European and local jurisdiction’s evolving regulatory agenda and consultation process.
Our responsibility towards the community
The bank plays an important role in supporting the community through the customers we serve and its very active and expansive
corporate social responsibility programs. Through the HSBC Malta Foundation, the bank seeks to work with numerous stakeholders in
the community with the aim of creating a sustainable future. Drawing from HSBC Group resources and a network of partners, we work to
tackle critical problems in key areas of sustainable finance, climate and future skills. We also remain committed to making a difference in
other areas, such as, but not limited to, youth education and the protection of our environment and heritage. We have pledged long-term
support to help people gain access to education and training, so they can acquire the skills they need to succeed in today’s rapidly
evolving workplace. In this context, we work closely with several stakeholders including government, policymakers, local businesses,
charities and non-profit organisations. We take pride in HSBC colleagues who contribute to the charities and causes that they feel
passionate about. In this regard, we grant employees a paid day to take leave and volunteer for work in the community. We also
encourage our people to take an active role in initiatives supported by the HSBC Malta Foundation. The Foundation is, furthermore,
immensely grateful for the support and guidance of our highly-experienced HSBC Malta Foundation Board members.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
3
From left - Dario Vella, Mellieħa Local Council Mayor, Simon Vaughan Johnson, HSBC Malta CEO and Prof Alex Torpiano, Executive President, Din l-Art Ħelwa
Torri l-Abjad (White Tower) in l-Aħrax tal-Mellieħa inauguration after an extensive restoration project carried out by Din l-Art Ħelwa with the support of the HSBC Malta Foundation
During 2021, the bank focused on creating a more sustainable planet and society, both internationally and locally. The bank has set out a
series of commitments to contribute to the global transition to a low-carbon economy and to become a net-zero bank. We are committed
to reducing our footprint through our operations, supply chain and financing portfolio. Being net zero means reducing the emissions we
add to the atmosphere while increasing the amount we remove, in order to achieve a balance that protects the planet, whilst creating a
thriving and resilient global economy. Our aim is to achieve net zero in our own operations and supply chain by 2030 or sooner; using the
Paris Agreement Capital Transition Assessment (‘PACTA’) tool to develop clear and measurable ways to achieve net zero. We will work
with our peers, central banks and industry bodies to mobilise the financial system around a globally consistent standard for measuring
financed emissions, and develop a functioning carbon-offset market. Furthermore, we will make regular and transparent disclosures to
communicate our progress in line with guidelines set out by the Taskforce on Climate-related Financial Disclosures guidelines, the
financial industry body that sets the standards for environmental disclosures. We warmly encourage our customers and clients to do the
same.
Currently the HSBC Malta Foundation is sponsoring three major transformative projects in line with its strategic priorities. The first project
is linked to Future Skills which is aimed at looking into the skills required in the future of work. This three-year research project aims to
identify the skills needed for the future of work in Malta and to embed these skills in the national curriculum. The second project is linked
with our climate ambition and net zero strategy. The objective of the project is to establish the requirements for a net zero carbon
commercial building. The purpose of such a framework is to create a guideline as to what a zero-carbon building should look like in the
Maltese context. The third project focuses on nature-based solutions to reduce pollution and capture emissions with the aim of creating
urban resilience across Malta and Gozo. The project aims to reduce 50kg of CO2 per year with the potential of scaling up to multiple areas
across the Maltese Islands.
Chairman’s Statement
4
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
HSBC Malta organised a series of webinars with The Malta Chamber titled ‘Business Plan for the Planet’, exploring the importance of adopting sustainable practices in business
operations
Every year, the HSBC Malta Foundation earmarks part of its funding for causes that are important to our community. During 2021, the
Foundation supported a number of projects including the Prince’s Trust International Achieve Programme, the JAYE (Young Enterprise)
Malta Foundation, The Down Syndrome Association Malta, Caritas Djakonija Parroċċi, The Malta Chamber, the Chamber of SME’s,
Hospice Malta, the Opening Doors Association, the Malta Aviation Museum Foundation, Nature Trust Malta, the Malta Community Chest
Fund Foundation and Fondazzjoni Patrimonju Malti amongst others.
I take this opportunity to thank all our employees whose support and dedication towards these initiatives and projects ensured their
success.
Our People
Once again I have to congratulate and thank all the staff for the considerable effort they have put in to keeping themselves and our
customers safe in these difficult times. At the same time, I must congratulate management for their leadership in this regard.
Our bank is led by a highly professional, multi-skilled and committed management team. Throughout the organisation, we are fortunate
to have people who are equally professional and proud to be a part of HSBC and the brand it represents. I would therefore like to express
my gratitude, on your behalf, to all our people who work diligently every day to deliver HSBC’s services to our customers in compliance
with the highest standards.
Our Board of Directors
During 2021, there were two changes to the membership of the Board. On 4 January 2021 and 11 August 2021, the bank announced the
respective appointments of Manfred Galdes and Matthew Colebrook as Non-Executive Directors of the bank. These two changes had
been announced during 2020 but at the time were awaiting regulatory approval. The Board of Directors of the bank is composed of
colleagues whose varied areas of expertise and experiences contribute unparalleled insights into the varied agendas debated during
meetings through the year, thereby ensuring that all decisions taken are based on the highest ethical standards and knowledge of the
banking sector.
I feel privileged to serve as the Chairman of this outstanding group of people. On your behalf, I want to express to them my gratitude for
their focus and dedication to the work of the Board.
Looking ahead
Despite the difficulties that we are all facing, we will continue to seek safe growth by focusing on sensible opportunities that are aligned
to our values and which will create long term benefits for all our stakeholders. Amongst other things, we will leverage our unique ability
to connect Maltese companies to the global economy.
I will conclude by expressing my gratitude to you, our shareholders, for you continued support and commitment to this bank. I assure
you that all at HSBC Bank Malta p.l.c. will continue to strive for the best outcomes for your investment.
Signed by John Bonello (Chairman) on 22 February 2022
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
5
Chief Executive Officer’s review
As the Chairman stated, 2021 continued to be a challenging year for the bank and for the Maltese and global economy. The bank has
demonstrated strong resilience, and has continued to invest and to innovate, with the aim of making it easier for our customers to bank
with us and for our colleagues to serve our customers.
Despite the impact of Covid-19, the bank’s fundamentals remain strong and underlying performance was resilient. HSBC’s financial
performance in 2021 improved but continued to be impacted by the persistent Covid-19 pandemic and negative market factors, including
the sustained negative interest rate environment, pressures on margins and grey-listing, together with the continued uncertainty and
impact that these factors have on market confidence in the short term. 
I would characterise 2021 as a year in which HSBC Malta continued to navigate the aforementioned challenges, ensuring that the bank is
well-positioned for growth in 2022, through increased investment for our customers in our products and delivery channels and an active
transformation program to facilitate increased productivity and efficiency. We remain committed to executing our Safe Growth strategy
that is focused on three strategic pillars: Growth, our Customers and our People. 
In the area of growth, we strive to deliver safe growth from areas of strength where we have the right to win by accelerating growth
from Commercial Banking and Wealth and Personal Banking and by maximising sustainable finance opportunities, leveraging our
international advantage, maintaining proactive cost management and maintaining a robust risk management and Financial Crime
Compliance culture. 
Our customer strategy is focused on building a bank for the future that is centred around customers, connecting them to the highest
growth potential and delivering world-class transaction banking capabilities.
Our people strategy is centred around empowering our people by investing in opportunities for our people, helping colleagues to
develop skills, learn new capabilities and adapt to the future, whilst reducing complexity and bureaucracy.
We have invested in a number of initiatives during the year to enhance customer experience, including the opening of our largest branch
at 80 Mill Street, Qormi, with extended weekday opening hours, providing our customers additional flexibility and convenience. We have
also launched the Universal Banker relationship manager concept in Malta, whereby through investment in relationship manager training,
customers can obtain multiple banking solutions through one point of contact. We successfully launched two factor authentication on
the HSBC mobile app, providing customers with a seamless approval process which provides additional protection from online payment
fraud.  We continued to invest in our commercial banking platform, HSBCNet and last year our commercial banking customers
recognised our market leading transaction banking capabilities. We were proud to have been awarded Best Trade Services Bank in Malta
in the annual Euromoney Trade Services Survey. We were also awarded Market Leader and Best for Service in Malta in the annual
Euromoney Cash Management Survey.
We continued to invest in the learning and development of our most valuable resource, our people, and were delighted to receive
approval for a material investment in upgrading our office campus at Qormi. This investment will benefit our colleagues and our
customers and will create a modern, fit for purpose business environment, delivering an important number of sustainability initiatives.
Chief Executive Officer’s review
6
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Throughout the year, the well-being of our people and the safety of our customers has continued to be our paramount concern. From the
outset of the pandemic, we have taken steps to enable our front-line colleagues to do their jobs safely and effectively. We are
enormously grateful to these teams who have continued to offer uninterrupted service to our customers throughout the pandemic. The
experience of the last 18 months has taught us that many roles can be undertaken effectively outside the traditional workplace,
accelerating our focus on enabling greater flexibility in how our people will work in the future.
I would like to express my sincere thanks and gratitude to our Board and my colleagues for their dedication, hard work and support in
2021.
Performance
The reported profit before tax for the year ended 31 December 2021 was €26.9m. This represents an increase of €16.4m or 157%
compared to prior year. The adjusted profit before tax of €29.7m increased by €19.2m, or 184% versus 2020. The adjusted profit before
tax for 2021 excludes the impact of a restructuring provision of €2.8m.
Reported profit attributable to shareholders was €17.8m resulting in earnings per share of 4.9 cent compared with 2.1 cent in the same
period in 2020. Net interest income decreased by 8% to €97.8m compared to prior year. The decrease was mainly driven by lower
average yields on debt securities, tighter margins and placement of surplus liquidity at negative rates. This was partially offset by lower
interest paid on customer deposits and changes in deposit composition towards short term placements. 
Net fee income increased by €3.1m compared to 2020, driven by increased activity across cards, payments and credit facilities, as well as
new fees introduced during the year to partially offset the increased cost of providing our services and products to customers.
Net trading income decreased by €3.0m mainly due to fair value gains on equity investments reported in 2020. These equity investments
were fully disposed of in 2020.
Operating costs for the year amounted to €105.4m, compared to €97.4m reported in 2020.  2021 operating expenses include a
restructuring provision of €2.8m. Excluding the restructuring provision, expenses increased by €5.2m or 5% compared to prior year.
While we continued to achieve sustainable savings from the transformation programmes announced in 2019 and 2021, non-staff costs
increased by €9.5m. The increase in non-staff costs was driven by compliance costs due to increased monitoring, transformation
expenses, regulatory fees, fraud losses, as well as higher investment in digitalisation.
During the year, we reported a release of Expected Credit Losses (ECL) of €1.0m, compared to a charge reported in 2020 of €25.6m. In
2020, higher ECL were booked to reflect the prevailing negative outlook and uncertainty arising from the Covid-19 pandemic. The net
release in 2021 mainly reflected the performance of specific customers rather than an improvement in the economic outlook. In 2021, our
Commercial Banking business reported a net release of €1.6m in view of the fact that recoveries on non-performing loans and improved
performance for a number of corporate names outweighed charges linked to credit deterioration of other customers. Wealth and
Personal Banking incurred a net charge of €0.6m as charges relating to extended moratoria measures exceeded reported recoveries. 
The effective tax rate was 34%. This translated into a tax expense of €9.1m, €6.3m higher than the €2.9m expense for 2020. While the
increase in tax expense arose mainly as a result of increased profits, in 2020, the bank also benefitted from a tax exemption on a
particular transaction.
HSBC Life Assurance (Malta) Ltd reported a loss before tax of €3.0m compared to a loss of €9.1m reported in 2020. The positive variance
in profitability of €6.1m is mainly attributable to better market conditions, whereby fears of rising inflation led to increased interest rates,
that positively impacted revenues by €7.7m. Growth was also achieved due to higher new business versus prior year of €0.5m and lower
expenses incurred of €1.2m, mainly in relation to the implementation of IFRS17. However, performance was negatively impacted by
higher actuarial losses of €3.3m, mainly driven by the prediction of future negative experience for a legacy product. The positive variance
for the year  is mainly reflected in the following income statement captions: (i) Net income from financial instruments of insurance
operations measured at fair value through profit or loss; (ii) Net insurance premium income; (iii) Movement in present value of in-force-
long term insurance business; (iv) Net insurance claims, benefits paid and movement in liabilities to policyholders; and (v) General and
administrative expenses.
Net loans and advances to customers decreased marginally by €67.9m to €3,197m. The decrease mainly related to the corporate
portfolio due to unforeseen repayments. Despite the fact that the bank continues to monitor the asset quality of non-performing loans
(NPL), we saw an annual net increase in NPL of €36.9m. The increase in wholesale NPL is mainly driven by the downgrade of a small
number of corporate customers engaged in industries impacted by the Covid-19 pandemic, while the increase in retail NPL is primarily a
result of individuals requesting a moratoria extension. 
Customer deposits grew by 7% to €5,621m driven by both retail and commercial deposits. The bank maintained a healthy advances to
deposits ratio of 57% and its liquidity ratios remained well in excess of regulatory requirements.
The financial investments portfolio decreased by 4% to €846m. The decrease relates to the investment of maturing debt securities in
balances held with the Central Bank of Malta. The risk appetite for investment quality remained unchanged. The portfolio is managed as
a high-quality liquidity buffer and consists entirely of securities of sovereign and supranational issuers rated A- (S&P) or better.
The bank’s capital ratios continued to improve with CET1 increasing from 18.0% to 18.4% and the total capital ratio improving from
20.7% to 21.1%. The bank maintained a strong capital base and is fully compliant with the regulatory capital requirements.
The bank continued in its effort to manage down Risk Weighted Assets across 2021 driven by placements of excess liquidity with the
Central Bank of Malta and improved collateral recognition. Whilst we continue to strengthen our capital base, we recognise the
importance of dividends to our shareholders. The Board has thus recommended a dividend pay-out ratio of 45% on reported profits after
tax. The final dividend will be paid on 21 April 2022 to shareholders who are on the bank’s register of shareholders at 14 March 2022
subject to approval by the Annual General Meeting scheduled for 13 April 2022.
Wealth and Personal Banking (‘WPB’)
2021 was a challenging year in which unprecedented events required us to continue to adapt in order to continue operating and
providing our customers with appropriate support and flexible choices in how they prefer to interact with the bank. As the pandemic
progressed, for the first time in our history, we adopted a hybrid working environment for most of our colleagues working at Head Office,
whilst our front line teams continued supporting our customers on a face-to-face basis.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
7
In addition to the introduction of Health & Safety measures in our branches and offices, we continued to increase awareness and
promote usage of self-service machines, cards and internet banking through public campaigns.
In May 2021 we opened our largest branch at 80 Mill Street, Qormi, completing our branch footprint of 12 branches.  80 Mill Street,
offers our customers the advantage of unrivalled opening hours until 7pm on weekdays, as well as the convenience of over 20 onsite
parking spaces, including two charging bays for electric vehicles. This was the first branch in the HSBC Group to have the Group’s new
‘look and feel’ branch branding.
From left: John Bonello, HSBC Malta Chairman, H.E The President of Malta George Vella, Simon Vaughan Johnson, HSBC Malta CEO during the official inauguration of 80 Mill Street,
Qormi branch
Given the external environment, we adopted a prudent lending policy on both secured and unsecured lending. Business performance on
lending was in line with expectations. 
In 2021, we launched a Two Factor Authentication journey within the HSBC Mobile Banking App, increasing customer protection against
online payment fraud and meeting a key requirement of the European Union’s Revised Payments Services Directive (PSD2). Client user
feedback has been excellent.
We have continued to grow digital channel usage, with over 95% of basic transactions now carried out digitally. Customer adoption of
HSBC Malta’s Mobile Banking App increased by 37% and monthly mobile logons increased by 57% in 2021. We have also launched 3
new needs-based Wealth Calculators on our public website and introduced a remote journey as a new channel to meet and service our
Wealth customers, in addition to traditional face-to-face interaction. During the last quarter of 2021, we relaunched our Advance
proposition providing improved value to customers with particular focus on graduates.
In the second half of the year, the insurance subsidiary launched the Employee Pension Plan, giving corporate customers the opportunity
to contribute towards the pension benefits of their employees through a tax-efficient product. The insurance business remained focused
on providing customers with improved access to services and the last quarter of the year saw the launch of an online protection quote
tool through the public website. To ensure that the bank makes it easier for our customers to conduct business with us at their
convenience and in a sustainable way, we have continued to invest in systems, laying the foundation for digitisation of all customer
journeys.
HSBC Global Asset Management launched the HSBC Responsible Investment Fund Range to our clients in 2021, which has been very
well received by the market. In addition, we continued to implement Environmental, Social and Governance considerations in the
investment decision making process. In 2022, the goals and priorities of the asset management subsidiary will continue to focus on
unlocking new growth opportunities to support both the global and local economy to transition from ‘capitalism at any cost’ to
‘responsible investing’.
Commercial Banking (‘CMB’)
In the past year, Commercial Banking has continued focusing on its main strategic aims of supporting our customers and opening up a
world of opportunity. Whilst our strategy in Malta is well aligned to the HSBC Group strategy, it is adapted to the needs of the local
market with an understanding of its particular issues, challenges and risk profile, as well as the associated opportunities. Forming part of
the HSBC Group means that we can provide strong support and expertise to customers who want to grow internationally, where we are
well placed to connect them to international trade flows. We have continued investing in our transaction banking capabilities, including
HSBCnet, leveraging a key Group strength. We have also continued innovating our business model and internal processes to be in a
Chief Executive Officer’s review
8
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
position to provide market leading solutions to our customers in an ever-changing environment. Finally, we have collaborated with other
areas and business lines of the bank to provide our customers with the products and services that they need. This was particularly
relevant with respect to Global Markets who provide our customers with a full range of corporate treasury solutions to manage both their
Foreign Exchange and Interest Rate risk. 
HSBCnet campaign ad
We were very proud to have won a number of prestigious awards in 2021. Earlier in the year we were named by Euromoney as Best
Trade Services Bank in Malta. The same survey, of more than 11,000 businesses globally, also named HSBC as the world’s best bank in
trade finance for a record fourth consecutive year. This recognition, which comes directly from the business community, is testament to
our employees’ dedication towards helping our customers chart a way forward, despite the challenges posed by the pandemic.  A few
months later we won two awards in Euromoney’s Cash Management Survey 2021 – Market Leader and Best for Service in Malta. The
Euromoney Cash Management Survey recognises the leading providers of cash management products and services through the receipt
of responses from leading cash managers, treasurers and financial officers worldwide, and is considered the benchmark survey for the
global cash management industry. This recognition from our clients acknowledges the efforts that we put into continuously improving
our services and the hard work of our teams, who strive to deliver the best services to our partners and clients. 
We have also seen an improvement in customer satisfaction following an internal survey conducted in 2021. This reflects the investment
made in 2021, and in prior years, to improve the service that we provide to our customers, including material investment in HSBCnet, our
internet banking platform and in our card products. In addition, we acted on customer feedback and have improved and simplified
various processes and internal procedures making it easier for customers to bank with us – this is an ongoing process which is now well
embedded in the business. 
Last but not least, we invested in our people. Following the team restructuring carried out in 2020, we continued refining the structure,
increasing the number of customer-facing roles particularly in the segments that provide the most opportunities and where customer
needs are more complex. We also rolled out several training programmes to ensure that our teams are equipped with the knowledge they
need to provide our customers with the highest level of service possible.
While we have continued feeling the effects of the pandemic on the local economy, which have resulted in dampened investor
confidence and lower utilisation of working capital facilities, we have seen steady demand for new credit facilities. Indeed, the value of
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
9
credit facilities approved for non-public companies was higher in 2021 than in the prior year. We are however seeing slower take-up of
such facilities as projects are taking longer to come to fruition.
We are working with a number of clients to identify the efficient and effective funding structures to support sustainability related
initiatives and projects, which in turn will help our customers and the wider Maltese economy to transition to net zero. We are training
our teams in this area to ensure that we can support our customers in their journeys towards a more sustainable operating model. We
also ran a marketing and information campaign aimed at raising awareness within our customer base and the broader business
community on the importance of becoming a sustainable business. Our teams have incorporated sustainability in their conversations with
customers and our internal research is showing that many customers have now started to focus on making their business more
sustainable.
As we enter into 2022, we can do so with confidence. Our teams remain focused on supporting our customers as economies continue to
open up, increasing overall consumer demand and international trade flows. Our aim is to continue growing our lending book responsibly
including trade finance, increasing overall transaction banking flows and supporting the hedging needs of our clients as the economy
recovers.
Global Markets (‘GM’)
2021 has been another challenging year for Global Markets as the business continued to face tough external market factors. Whilst
trading profits were slightly below those earned in 2020, underlying foreign exchange sales were strong, notwithstanding increased
competition. The business continued to collaborate closely with Commercial Banking and Wealth and Personal Banking businesses in
support of our customers and our safe growth strategy. Commercial clients continued to benefit from the technical expertise and digital
solutions of HSBC Group. We continued our education outreach and during the year a number of seminars were held with leading
industry specialists.
Corporate Centre (‘CC’)
Markets Treasury (Corporate Centre), which manages cash, liquidity, funding and interest rate risk for the entity, generated satisfactory
revenues as a result of proactive management of excess liquidity, notwithstanding the challenges arising from the prevailing market
conditions and the negative interest rate environment. The Hold to Collect and Sell portfolio is mainly invested in high quality liquid
assets, reflecting our conservative risk appetite, which is delivering very low to negative revenue performance under the current negative
interest rate environment scenario.
Digital Business Service (‘DBS’)
DBS supports and helps our business to grow safely by driving and providing digital solutions for the bank and delivering excellent
services for our customers and colleagues.
Canopy erected at one of our branches to protect our customers
In 2021, various teams in DBS remained pivotal in providing improved customer service and business continuity during the Covid-19
pandemic. Evolving technology solutions enabled over 90% of our colleagues to work more efficiently from home while our Corporate
Services team ensured that changes in Health Authority Guidelines continued to be respected in all work places and customer facing
Chief Executive Officer’s review
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
locations. This involved a number of new initiatives such as installing temperature screening machines in branches as well as reinstalling
sun shades to protect our customers during the hot summer months and so safeguard social distancing measures already in place. We
take pride in the positive feedback received from customers, employees and the Unions on the way that HSBC Malta continued to
manage the Covid-19 challenge.
DBS continued to deliver on key strategic projects in 2021. These included the opening of our flagship branch in Qormi which show-
cases a truly modern take on today’s evolving customer needs and service preferences. 
With sustainability at the forefront of all that DBS stands for, in November 2021, Procurement supported the launch of a webinar entitled
‘Driving Sustainable Operations & Services with our Partners and Suppliers’. The aim was to formally introduce a forum in which to
discuss, share best practice and collaborate on the pressing topic of healing our planet. Our aspiration is to be net zero in our operations
and supply chain by 2030 or sooner, aiming to reduce emissions, deliver low carbon solutions or adopt new technologies. We are keen to
work together and support our partners on their environmental journey, providing the right tools and insights to help navigate or
transition to net zero. 
One of the most exciting initiatives in 2021 within Corporate Services resulted in formal approval of a multi-million Euro capital
investment project to transform our Operations Centre in Qormi. This major property development will be the largest project of its kind
for HSBC in Europe and will create a modern, fit for purpose business environment for all who work or visit there and will facilitate a
number of carbon net zero initiatives fully aligned to our published targets.
Artistic impression of HSBC Malta reception area of our Operations Centre in Qormi
Our people
Our people and the community we serve are at the heart of our business. As an organisation, we want our employees to grow and thrive
so that in turn they can provide excellent customer service. We want our people to realise their career aspirations and ensure their well-
being. We want to drive a sustainable business so that the community in which we operate prospers, leaving a positive legacy for
generations to come.
During 2021, we have had another demanding year as Covid-19 persisted. We continued to adapt our ways of working and our people
have done a great job in maintaining business continuity throughout the year. We have capitalised on our employee platforms and tools
so that our employees continue driving their personal development and improving their skills and abilities. We achieved this through
various forms of virtual-led programs and with the introduction of a new learning platform assisted by artificial intelligence, using intuitive
tools to provide bite-sized learning for all.
We completed another Future Leaders Programme online, aimed at building the next generation of Leaders for HSBC Malta who are now
ready to take on bigger roles and grow their careers both in Malta and internationally. We have launched a myriad of well-being activities
for our people specifically aimed at enhancing our ways of working in a remote environment. We have continued to provide employees
with more flexibility and have given them all the tools needed to be able to work from home. We continued leading our HSBC HR
roundtable sessions where we brought together Heads of Human Resources from other leading organisations in Malta to discuss best
practices and share challenges to identify common solutions, especially those linked to the retention of talent. 
In 2021, we have launched the Climate Action Network initiative aimed at driving sustainable projects through our people. We have over
100 employees who volunteer in driving different initiatives inside and outside the bank with the aim of reducing emissions, and creating
a more sustainable economy and society. Most of these projects were delivered remotely and have created a positive impact in our
community. During the year we have led numerous initiatives linked with the environment, sustainable finance and our ambition to
become a net zero bank in line with our Group strategy.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
11
2021 ended with the third edition of the Business Woman of the Year Awards held under the patronage of His Excellency the President of
Malta, in collaboration with Nestle and Farsons Group to celebrate business women leaders across Malta. This award aims to promote
and encourage more participation of women in the local business arena in line with HSBC’s Diversity and Inclusion strategy.
His Excellency George Vella, President of Malta (centre) with all the winners of the third edition of the Malta Businesswoman of the Year Awards
Financial Crime Compliance (‘FCC’)
As part of its Anti-Money Laundering programme and agenda, HSBC continued to demonstrate its commitment to the highest standards
of financial crime risk management in 2021. It is understood and appreciated that our high standards may occasionally result in
inconvenience for clients as we work towards ensuring that we know our customers. We would therefore like to take this opportunity to
thank our customers for their patience and understanding. We believe that the steps which are taken on this front provide stability and
security to the financial system at large and to all those who make use of it, especially in the current environment. High compliance
standards in the banking system continue to be a source of strength and competitive advantage, as we work diligently to support growth
in Malta’s economy by facilitating new business and cross-border trade.
Outlook
The outlook for 2022 will depend to a large extent on the evolution of the pandemic and remains challenging as the Covid-19 pandemic
continues to impact economic growth and market confidence, both locally and globally. 
HSBC remains a strong bank that continues to be strategically focused on growing our business in Malta. We continue to maintain high
standards through applying our core values and doing the right thing by bringing the best that HSBC has to offer to the Malta market. We
remain firmly committed to this ethos as we continue to pivot the business towards Safe Growth in the years ahead.
We will continue to navigate the impact of negative Euro interest rates which are likely to remain negative for the medium-term and the
compliance risks that will continue to determine the bank’s appetite for parts of the economy.
We continue to transform our business to enable the bank to navigate the future with resilience and mitigate any perceived risks. We
have adjusted our cost structure to reduce the impact of negative interest rates and have re-aligned our branch network to respond to
changing customer preferences.
I am immensely proud of the dedication and resilience that my colleagues have demonstrated and continue to demonstrate during the
Covid-19 pandemic. The HSBC Malta team have made significant efforts to support each other, look after our customers and enable
business continuity during the year.
We remain dedicated across the entity to operate in a sustainable, climate-aware fashion, aligning our activities to the Group’s ambition
to be net zero in operations and supply chain by 2030, and in financed emissions by 2050, in line with the goals of the Paris Agreement
on climate.  Looking ahead to 2022, we seek to embed our Climate Strategy, actively supporting the Maltese economy to transition
towards the Paris Agreement goal of net zero by 2050. We shall be demonstrating our commitment to these goals through the exciting
renovation project that we are embarking on at our Qormi business campus.
Our Safe Growth strategy is, I believe, in the best interest of all our stakeholders and remains central to HSBC’s track record in generating
dividends. Having further strengthened the foundation of our business in 2021, we remain focused on achieving safe growth and
maintaining the highest standards through applying our core values and doing the right thing. 
We remain fully committed to partnering with our customers, opening up a world of opportunity for both our customers and the wider
community in Malta.
Signed by Simon Vaughan Johnson (Chief Executive Officer) on 22 February 2022
Chief Executive Officer’s review
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Board of Directors and Company Secretary
John Bonello, CHAIRMAN AND NON-EXECUTIVE DIRECTOR
Appointed Director of the bank in July 2013 and Chairman in August 2019. Member of the bank’s
Remuneration and Nomination Committee, former Chairman of the bank’s Audit Committee and former
Member of the bank’s Risk Committee. Mr Bonello is a Chartered Accountant and a Certified Public
Accountant. He was formerly the Chairman and Senior Partner of PricewaterhouseCoopers in Malta
from where he retired in December 2009. He is a Fellow of the Malta Institute of Accountants,
Chairman of the Disciplinary Committee of the Institute and a Member of the Joint Disciplinary Board of
the Accountancy Board.
Simon Vaughan Johnson, DIRECTOR AND CHIEF EXECUTIVE OFFICER
Appointed Chief Executive Officer and Executive Director in July 2020. Chairman of HSBC Life
Assurance (Malta) Ltd and of HSBC Global Asset Management (Malta) Limited. Joined HSBC Group in
1986. Mr Vaughan Johnson has broad and deep international banking experience as a Country Head,
also working across Commercial Banking, Wealth and Personal Banking, and Global Markets.
Additionally, he has worked in Financial Crime Risk, Trade Services, Payments and Cash Management,
and e-Commerce. His postings span nine countries and four regions. Prior to taking up his appointment
in Malta, Mr Vaughan Johnson was Head of the Remediation Management Office, HSBC France. He
graduated with Honours from the University of Stirling, majoring in English and French. He is an
Associate of the Chartered Institute of Bankers (‘ACIB’) and a Member of the Chartered Institute of
Linguists. He is a Certified Anti-Money Laundering Specialist.
Michel Cordina, EXECUTIVE DIRECTOR
Appointed Executive Director in April 2019. Mr Cordina, formerly Head of Commercial Banking, is
presently Head of Business Development. Mr Cordina is a seasoned banker and has a wealth of
experience having started his banking career 40 years ago. He has worked in various areas of
banking in both Personal Banking and Commercial Banking. He has also led a number of operational
and support functions of the bank. He has occupied various executive roles within HSBC Bank Malta
including Deputy Head of Operations and Head of Business Transformation. He was also the
Programme Manager responsible for bringing the HSBC Contact Centre to Malta. In 2010, he was
seconded to HSBC Commercial Banking in London where he performed the role of Head of Sales
Performance. He is an Associate of the Chartered Institute of Bankers (‘ACIB’).
Andrew Muscat, NON-EXECUTIVE DIRECTOR
Appointed Director of the bank in January 2014. Partner at Mamo TCV Advocates where he heads the
Corporate & Banking Department. Professor at the Faculty of Laws of the University of Malta. Professor
Muscat also has three directorships in other companies. Former Director of Mid-Med Bank p.l.c. and
also former Member of the Board of Governors of the Malta Financial Services Authority. Presently
Member of the bank’s Audit Committee and of the bank’s Remuneration and Nomination Committee.
Yiannos Michaelides, NON-EXECUTIVE DIRECTOR
Appointed Director of the bank in May 2017. Presently Member of the bank’s Risk Committee. Mr
Michaelides has over 28 years of international business experience involving telecoms and media as
CEO and holder of other Executive positions. He is currently CEO of Cablenet Communication Systems
Ltd. Till 31 March 2017, Mr Michaelides occupied the post of Group CEO of GO p.l.c. Before joining GO
p.l.c. he was Senior Executive at EITL Dubai (a Dubai Holding subsidiary), with responsibilities including
portfolio management and value creation at EITL portfolio companies. Prior to that, he worked as Vice-
president of Strategic Marketing at du in Dubai, the new integrated telecoms operator in the UAE,
Areeba, the second mobile operator in Cyprus and Nortel Networks in North America and EMEA. Mr
Michaelides holds a B.Eng. (Honours), M.Eng. from McGill University (Montreal, Canada) and an M.B.A.
with distinction from Warwick Business School (UK).
Board of Directors and Company Secretary
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
13
Ingrid Azzopardi, NON-EXECUTIVE DIRECTOR
Appointed Director of the bank in August 2019. She is a Chartered Director and is the Chairperson of
the bank’s Audit Committee and Member of the bank’s Risk Committee. A former Director of HSBC Life
Assurance (Malta) Ltd and former Chairperson of the Audit and Risk Committee of said company. Ingrid
Azzopardi is presently the Group Internal Auditor of GO p.l.c., a position she has occupied since
November 2000. She has chaired various committees at GO p.l.c., including the Group Fraud Forum
and the Gender Equality Committee. She is a Certified Public Accountant and Auditor, a Fellow of the
Malta Institute of Accountants, a Fellow of the UK Institute of Directors, and also a Member of the
Institute of Internal Auditors.
Sue Vella, NON-EXECUTIVE DIRECTOR
Appointed Director of the bank in May 2016. Dr Vella is the Chairperson of the bank’s Remuneration
and Nomination Committee and Member of the bank’s Audit Committee. Presently Head of the
Department of Social Policy and Social Work at the University of Malta, Chairperson of DISCERN
research institute. Former Chief Executive Officer of Malta Enterprise Corporation and of the
Employment and Training Corporation, and former Vice-President of the EU’s Employment Committee.
Doctor of Philosophy in Social Policy & Social Work, Master of Science in Social Policy & Planning,
Bachelor of Arts in Psychology and Diploma in Applied Social Studies.
Manfred Galdes, NON-EXECUTIVE DIRECTOR
Appointed Director of the bank in January 2021. Manfred Galdes is the managing partner of the ARQ
Group, a multi-disciplinary advisory firm. After graduating as a lawyer (LL.D.) from the University of
Malta, he obtained a Masters Degree (LL.M.) in European (Commercial) Law at the University of
Leicester. Dr Galdes has spent the last 22 years practising in the area of regulatory and financial crime
compliance having held various leading roles both in the private and public sector. Between 2008 and
2016, Dr Galdes headed the FIAU, Malta’s financial intelligence unit and principal AML/CFT supervisory
authority.
Matthew Colebrook, NON-EXECUTIVE DIRECTOR
Appointed as Director in August 2021. Mr Colebrook is an experienced banker with 35 years of
distinguished service with the HSBC Group. He has held various senior managerial positions within
HSBC Group in the UK, the USA, Asia, the Middle East and Europe. He also occupied the roles of
Executive Director of HSBC Bank Singapore Ltd, Chairman and Non-Executive Director of HSBC Global
Asset Management (Singapore) Ltd and Non-Executive Director of HSBC Insurance (Singapore) Ltd.
Presently, Mr Colebrook holds the role of Regional Head Wealth and Personal Banking for Europe, the
Middle East and North Africa and Turkey.
George Brancaleone, COMPANY SECRETARY
Company Secretary of HSBC Bank Malta p.l.c. since June 2004. Joined the bank in 1980, graduated
LL.D. in 1988 and read an MA Degree in Contemporary European Studies (Sussex University 1993).
Former Company Secretary of various HSBC subsidiaries in Malta.
Board of Directors and Company Secretary
14
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Executive Committee and Head of Internal Audit
Simon Vaughan Johnson, DIRECTOR AND CHIEF EXECUTIVE OFFICER
Appointed Chief Executive Officer and Executive Director in July 2020. Chairman of HSBC Life
Assurance (Malta) Ltd and of HSBC Global Asset Management (Malta) Limited. Joined HSBC Group in
1986. Mr Vaughan Johnson has broad and deep international banking experience as a Country Head,
also working across Commercial Banking, Wealth and Personal Banking, and Global Markets.
Additionally, he has worked in Financial Crime Risk, Trade Services, Payments and Cash Management,
and e-Commerce. His postings span nine countries and four regions. Prior to taking up his
appointment in Malta, Mr Vaughan Johnson was Head of the Remediation Management Office, HSBC
France. He graduated with Honours from the University of Stirling, majoring in English and French. He
is an Associate of the Chartered Institute of Bankers (‘ACIB’) and a Member of the Chartered Institute
of Linguists. He is a Certified Anti-Money Laundering Specialist.
Elizabeth Hardy, CHIEF OPERATING OFFICER
Appointed Chief Operating Officer in February 2021. Mrs Hardy will soon celebrate 40 years of
international experience within the HSBC Group. She joined Midland Bank in the UK in 1982 and has
held a variety of managerial roles in Personal Banking, Audit, Risk, Human Resources and Operations.
Mrs Hardy held the position of Chief Operating Officer for Kazakhstan, Russia and Italy prior to taking
up her role in Malta.
Charlotte Cilia, CHIEF FINANCIAL OFFICER
Appointed Chief Financial Officer in December 2020. Mrs Cilia is a certified public accountant and
auditor with over 20 years of varied experience across audit and banking finance. She joined the HSBC
Finance team as a senior manager in 2010 where she worked for four years and re-joined the bank in
2018 as Chief Accounting Officer and Deputy Chief Financial Officer. She served as Deputy Chief
Financial Officer during her four years at MeDirect Group until 2018. Previously an auditor at KPMG in
Malta and the UK where she performed key roles on various international engagements. She is a
Director on the Board of HSBC Life Assurance (Malta) Ltd.
Crawford Prentice, HEAD OF WEALTH AND PERSONAL BANKING
Appointed to the role in July 2020. Mr Prentice has been with the HSBC Group since 1994 and has held
a number of senior positions including Deputy CEO and Head of Customer Value Management for
M&S Bank, as well as Head of Service Recovery, Head of People Experience and Head of Regulated
Distribution for HSBC Wealth and Personal Banking in the UK. Prior to joining HSBC Bank Malta p.l.c.,
Mr Prentice was the Chief Operating Officer for Wealth and Personal Banking in the Channel Islands
and Isle of Man.
Michel Cordina, EXECUTIVE DIRECTOR AND HEAD OF BUSINESS DEVELOPMENT
Appointed Executive Director in April 2019. Mr Cordina, formerly Head of Commercial Banking, is
presently Head of Business Development. Mr Cordina is a seasoned banker and has a wealth of
experience having started his banking career 40 years ago. He has worked in various areas of banking
in both Personal Banking and Commercial Banking. He has also led a number of operational and
support functions of the bank. He has occupied various executive roles within HSBC Bank Malta
including Deputy Head of Operations and Head of Business Transformation. He was also the
Programme Manager responsible for bringing the HSBC Contact Centre to Malta. In 2010, he was
seconded to HSBC Commercial Banking in London where he performed the role of Head of Sales
Performance. He is an Associate of the Chartered Institute of Bankers (‘ACIB’).
Executive Committee
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
15
Jesmond Apap, HEAD OF GLOBAL MARKETS
Appointed Head of Global Markets in April 2020. Joined the bank in 1989, then Mid-Med Bank. During
his career Mr Apap has held a number of key roles that have seen him successfully drive
transformation and performance. Mr Apap started his career in Operations before moving to Markets.
Before taking up his role as Head of Global Markets he headed Markets Treasury, managing cash,
liquidity, funding and the structural interest rate risk for the bank.
Caroline Buhagiar Klass, HEAD OF HUMAN RESOURCES
Appointed Head of Human Resources in April 2018, and in 2019, in addition to her HR responsibilities,
she took over the responsibility for Corporate Sustainability. Ms Buhagiar Klass began her HR career
with ST Microelectronics in Malta in the 1990s before moving overseas in 2004 to work for ST in Italy
and then France. In 2010 she moved to Singapore, initially with ST before becoming the Head of Talent
and Leadership Development for AXA Insurance. Towards the end of 2015 she returned to Malta and
established her own HR consultancy, working with a range of local businesses before joining HSBC
Bank Malta p.l.c.
Joyce Grech, HEAD OF COMMERCIAL BANKING
Ms Grech, who has been heading the Commercial Banking team for the past two years, has a broad 25
year career with HSBC, mainly in Malta.  Before taking up her current role, she occupied various roles
in the bank’s Risk department including Deputy Head of Credit and, most recently was the bank’s
Chief Risk Officer for over six years. She had previously led Customer Value Management within the
bank’s Personal Banking area for a number of years. Having started her career in Trade Finance and
Commercial Banking, Ms Grech has a strong affinity with the bank’s commercial customers. She is an
avid supporter of diversity and inclusion in its various forms and has chaired the bank’s Diversity and
Inclusion Committee for a number of years. She acts as mentor to a number of female colleagues,
supporting their careers within the organisation. She sponsors internal initiatives and participates in
various activities to ensure that the bank embraces diversity in a meritocratic manner throughout the
employee life cycle.
Gerard Walsh, CHIEF RISK OFFICER
Mr Walsh was appointed as Chief Risk Officer of HSBC Bank Malta p.l.c., in 2019. He joined the bank
in 2018 as Head of Lending Services and Risk Governance, having previously served as Chief Risk
Officer for HSBC Mauritius from 2014 to 2018, as well as Executive Director of the Mauritius subsidiary
from 2017 to 2018. He is studying for a qualification in risk management with the University of South
Africa.
Joseph Sammut, GENERAL COUNSEL
Appointed General Counsel in July 2016. Joined the bank in 1981, then Mid-Med Bank, and
subsequently read law at the University of Malta, where he graduated in 1988. He obtained his
postgraduate degree in European Law at the College of Europe in Bruges in 1989. At the bank’s Legal
Office he worked for some years as a contracts lawyer and subsequently focused mainly on financial
services. Since 1999, he was entrusted with leading the legal advice team and in 2010 worked at HSBC
Head Office in London on a short-term legal assignment. He was appointed Deputy General Counsel in
2012.
Executive Committee
16
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Mandy Falzon, CHIEF COMPLIANCE OFFICER
Appointed as Chief Compliance Officer in March 2021, leading the Regulatory Compliance and
Financial Crime Compliance teams at HSBC Malta. She graduated as a Doctor of Laws from the
University of Malta in 2005, and has 15 years’ experience in banking and financial services at HSBC. Dr
Falzon held managerial positions within the HSBC Malta Legal Office prior to joining the Regulatory
Compliance function in 2015 in a senior management position. She is a Director on the Board of HSBC
Global Asset Management (Malta) Limited.
Carine Arpa, HEAD OF COMMUNICATIONS
Ms Arpa was appointed Head of Communications in January 2019, bringing over 15 years of
experience in the fields of communications, marketing and media relations. Ms Arpa has undertaken a
number of different roles in the course of her career, including leading communications and marketing
campaigns for the National Euro Changeover Committee, the European Commission Representation in
Malta, KPMG and EY. She holds a Bachelor of Arts in Psychology and Communication Studies
(Honours), a Master's Degree in European Studies and an MBA (Henley).
George Brancaleone, COMPANY SECRETARY
Company Secretary of HSBC Bank Malta p.l.c. since June 2004. Joined the bank in 1980, graduated
LL.D. in 1988 and read an MA Degree in Contemporary European Studies (Sussex University 1993).
Former Company Secretary of various HSBC subsidiaries in Malta.
Morgan Carabott, HEAD OF INTERNAL AUDIT
In September 2021, the Bank announced the appointment of Morgan Carabott as Head of Internal
Audit, subject to regulatory approval. Ms Carabott joined the Bank as Deputy Head of Internal Audit in
2018. Prior to joining the Bank she spent seven years as a Senior Internal Auditor within the Insurance
industry and was an external auditor with one of the big four audit firms. Ms Carabott is a warranted
Accountant and Auditor and is also a Certified Information Systems Auditor and Certified Anti-Money
Laundering Specialist. She is a Member of the Malta Bankers Association Executive Committee and a
Fellow of the Malta Institute of Accountants. She has strong auditing skills and sound industry
knowledge coupled with extensive experience in managing numerous audit assignments across
different sectors.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
17
Report of the Directors
The bank provides a comprehensive range of banking and
financial related services. The bank is authorised to carry on the
business of banking, under the Banking Act, 1994 as a credit
institution. It is also a licensed financial intermediary in terms of
the Financial Markets Act, 1990. The bank also holds Category 3
and Category 4a Investment Services licences issued by the Malta
Financial Services Authority in terms of the Investment Services
Act, 1994. These licences authorise the bank to provide
investment services to third parties and custodian services for
collective investment schemes respectively. As at 31 December
2021 the bank had 12 branches in Malta, one of which is located
in Gozo.
The local group comprised the following subsidiaries at
31 December 2021: HSBC Life Assurance (Malta) Ltd and HSBC
Global Asset Management (Malta) Limited.
Principal activities of subsidiaries
HSBC Life Assurance (Malta) Ltd is authorised by the Malta
Financial Services Authority to carry on the business of insurance
in Malta under the Insurance Business Act (chapter 403, Laws of
Malta). It offers a range of protection and investment life
assurance products distributed mainly through HSBC Bank Malta
p.l.c. which is enrolled as a tied insurance intermediary for HSBC
Life Assurance (Malta) Ltd under the Insurance Intermediaries Act,
2006.
HSBC Global Asset Management (Malta) Limited is the investment
solutions provider of the HSBC Group in Malta. It manages an
array of funds which have exposure to both Maltese and
international financial markets. HSBC Global Asset Management
(Malta) Limited specialises in the provision of tailor-made
discretionary portfolio management services for institutions and
individuals.
Business and strategy
HSBC Malta is part of HSBC Group, which has an unrivalled global
position with around 220,000 employees working across the world
to provide a broad range of banking products and services to
around 40 million customers. HSBC Malta is Malta’s leading
international bank. No international bank has our presence in
Malta and no domestic bank has our international reach.
In March, HSBC Group launched its refreshed purpose, strategy
and values. HSBC Group’s new purpose statement is: Opening up
a world of opportunity.  HSBC is here to use our unique expertise,
capabilities, breadth and perspectives to open up new kinds of
opportunities for our customers. Our purpose is to bring together
the people, ideas and capital that nurture progress and growth,
helping to create a better world – for our customers, our people,
our investors, our communities and the planet we all share.
Our values define who we are as an organisation and make us
distinctive. Our values have been re-defined and extended. We are
dependable, by succeeding together, we make the connections
that allow us to realise the full potential of those opportunities. We
are open, we value difference and actively take a broader
perspective, and so are alert to more opportunities for our
customers. We are connected by taking personal responsibility
and ensuring we leverage those opportunities with integrity.  The
new value is We get it done by committing to tenaciously follow
through the actions that make those opportunities a reality.
Our customers range from individual savers and investors to large
international companies. We aim to connect our customers to
opportunities and help them to achieve their ambitions. The
products and services we offer vary widely according to
customers’ needs. We provide individuals and families with
mortgages that help them buy their own home, as well as savings
accounts, insurance solutions and wealth management products
that help personal banking customers to plan and invest for the
future. For our commercial customers, we offer loans to invest in
growth, and transaction banking products such as foreign
exchange, trade financing and cash management services that
enable businesses to expand both locally and internationally. For
large companies and organisations operating across borders, we
also offer tailored advice on decisions such as financing major
projects or making acquisitions.
Our strategy is aimed at growing safely whilst sustaining a robust
risk management environment and maintaining a strong financial
crime compliance culture. We take a long term view in terms of
our customer relationships and we aim to build a bank that is fit
for the future which is centred around our customers. Our Safe
Growth strategy is aligned and consistent with the HSBC Group’s
strategy. We aim to generate stable returns for our shareholders,
increase operational efficiency and simplify processes making it
easier for our customers to do business with us and for our staff to
serve our customers. In 2021, we established the Business Growth
Forum to drive our growth agenda and the Climate Business
Council to drive our Sustainability agenda. We launched new
products and initiatives such as the Responsible Fund range and
the Corporate Employee Pension Plan. Looking ahead to 2022, we
seek to embed our Climate Strategy, actively supporting the local
economy to achieve the Paris Agreement goal of net zero by 2050.
This banking model is designed to enable the local group to
effectively meet clients’ diverse financial needs, support a strong
capital and funding base and further reduce the risk profile and
volatility.
Research and development
Operating in the financial sector, the bank does not consider
Research and Development as a main area of activity.
Events occurring after the end of the
accounting period
There were no significant events affecting the bank or any of its
subsidiary undertakings which have occurred after 31 December
2021.
Conduct
Throughout the course of 2021, focus continued on the
responsibility and accountability that each employee has to
perform their duties in line with the HSBC Conduct framework,
which is aimed at the delivery of fair outcomes for customers and
the support of the orderly and transparent operation of financial
markets. In this respect, as the local group’s safe growth strategy
evolves, conduct-related matters have retained a pivotal position
on the agenda with relevant discussions and oversight being
exercised in the appropriate risk governance fora.
Key conduct activities undertaken by the local group during the
year included:
•continued adherence with the HSBC Global Principles,
reflecting the core values, strategy and prudent approach to
conduct risk management.
•continued emphasis on customer service, having as one of its
main objectives the strengthening of a culture which provides
customer experiences that are aligned with their needs and
deliver fair customer outcomes; and
•continued and enhanced focus on the embedding of the
principles of good conduct in all safe growth initiatives, whilst
taking into consideration the current dynamic regulatory and
business environment.
Throughout this year, regulatory engagement has continued to be
conducted with high professional competence, representing trust,
respect and full transparency that facilitated an ongoing value-
adding constructive dialogue, which is a trademark of the local
group’s robust governance and oversight culture.
Report of the Directors
18
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Results for 2021
HSBC Bank Malta p.l.c. (‘the bank’) and its subsidiaries
(collectively referred to as the local group), reported a profit before
tax of €26.9m for the year under review. The local group’s profit
attributable to shareholders was €17.8m.
The Directors have proposed a gross final dividend of 3.42 cents
per ordinary share. The final dividend will be payable to
shareholders on the bank’s register as at 14 March 2022.
Further information about the results of the local group is provided
in the Income Statements and the Statements of Comprehensive
Income on pages 48 and 49 respectively.
A detailed review of the financial performance including important
events affecting the local group’s results and an indication of
future developments are included in the Chief Executive Officer’s
Review.
Key performance indicators
The Board of Directors tracks the local group’s progress in
implementing its strategy with a range of financial measures or
Key Performance Indicators (‘KPIs’). Progress is assessed by
comparison with the local group strategic priorities, operating plan
targets and historical performance. The local group reviews its
KPIs regularly in light of its strategic objectives and may adopt
new or refined measures to better align the KPIs to HSBC’s
strategy and strategic priorities.
2021
2020
Profit before tax (reported) (€m)
26.9
10.4
Profit before tax (adjusted) (€m)
29.7
10.4
Cost efficiency ratio (reported) (%)
80.3
73.0
Cost efficiency ratio (adjusted) (%)
78.2
73.0
Post-tax return on equity (reported) (%)
3.7
1.6
Post-tax return on equity (adjusted) (%)
4.0
1.6
Common Equity Tier 1 ratio (%)
18.4
18.0
Profit before tax (reported/adjusted): Reported profit before
tax is the profit as reported under IFRS. Adjusted profit before tax
excludes the impact of notable items as detailed in the Chief
Executive Officer’s Review.
Outcome (reported): Reported profit before tax was higher year-
on-year as a result of lower ECL and better performance from the
insurance business. 2021 included a one-off restructuring
provision to deliver future cost savings.
Outcome (adjusted): The adjusted profit before tax is higher than
2020 due to lower credit losses and better performance from the
insurance business.
Cost efficiency ratio (adjusted): is measured as total operating
expenses divided by net operating income before changes in
expected credit losses and provisions.
Outcome: The adjusted cost efficiency ratio increased from 73%
in 2020 to 78% in 2021. Adjusted costs increased by 5% year on
year. While we continued to achieve sustainable savings from
transformation programmes, non-staff costs increased due to
higher compliance costs, regulatory fees, fraud losses and
investment in digitalisation.
Post-tax return on equity (reported/adjusted): is measured as
post-tax profit divided by average equity.
Outcome (reported): The reported return on equity was below
the target range primarily due to the impact of Covid-19 and the
prevailing negative rate environment. However it is significantly
higher than prior year and in line with regional market
expectations.
Outcome (adjusted): The adjusted return on equity excludes the
notable items. It improved versus prior year but is still below target
range due to the ongoing impact of negative interest rates and
uncertainty in the market.
Common Equity Tier 1 capital ratio (‘CET1’): represents the
ratio of Common Equity Tier 1 capital comprising shareholders’
equity less regulatory deductions and adjustments, to total risk-
weighted assets. The group seeks to maintain a strong capital
base to support the development of its business and meet
regulatory capital requirements at all times.
Outcome: The Common Equity Tier 1 ratio improved compared to
2020 due to retained profits and a reduction in RWAs driven by
more effective placements of excess liquidity and more efficient
collateral management.
From a non-financial perspective, Directors evaluate the outcomes
of surveys and reviews undertaken on a regular basis in respect of
customers, people, culture and values including customer service
satisfaction, employee involvement and engagement, and diversity
and sustainability.
Employees
We are opening up a world of opportunities for our people by
building an inclusive organisation that prioritizes well-being,
investment in learning and career development and progression
and prepares our people for the future of work.
Our culture
Our culture has been shaped by the diversity of thought of our 942
employees. We are founded on the strength of the experience of
our people. We strive to value diversity and inclusion (‘D&I’) to
reflect our customers and community. Our values are the
foundation of how we operate by valuing differences, succeeding
together, and taking responsibility and we get it done. We are
committed to an inclusive culture where our people can be
confident that their views matter, their workplace is an
environment free from bias, discrimination and harassment, and
where they can see that advancement is based on merit.
Diversity and Inclusion
We have set up a Diversity and Inclusion Committee led by Senior
Management with representation of all departments in the bank.
The Committee ensures we drive our Diversity and Inclusion
policies and principles through, recruitment processes, learning
programmers and various initiatives across the bank and Malta. In
2021, 53% of our senior leadership roles were held by women and
70% of internal appointments into senior management roles were
female. We have delivered quarterly career roadshows to support
the promotion of our female colleagues into management roles.
During the year, we held a session on celebrating cultures for all
employees who had the opportunity to share their traditions,
values and ways of working. This year HSBC Bank Malta p.l.c. was
the proud Gold sponsor of Pride where again we showed our
commitment to promoting and supporting the LGBTI+ community.
We launched our Diversity and Inclusion plan which focuses on
Ethnicity, Disability and Gender Diversity including LGBTI+. The
plan is discussed at the People Committee where an update on
KPIs and program sponsorship is discussed and executed across
the bank.
The future of Work
The Covid-19 outbreak has provided us with many valuable
lessons of how we can enable many roles to be performed
remotely whilst continuing to provide uninterrupted service to our
customers. This has allowed us to provide better flexibility in
future working arrangements. We have invested heavily in
different programs to equip our people with the resilience they
need to succeed now and in the future. We have launched a
flagship program called Future Skills for our employees and
created an internal talent marketplace through technology to help
improve career development by the matching skills and
aspirations of our people with business needs.
Well-being
We have provided additional resources to help colleagues to
manage mental and physical health challenges brought about by
Covid-19. We have conducted over 70 mental health well-being
sessions to all employees locally during 2021 and continued to
work closely with our Employee Assistance Program provider to
ensure that we support our people through these challenging
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
19
times. We have continued to invest in safety equipment and
protocols for our front line. We introduced virtual appointments
and made sure that cybersecurity controls and software continued
to support employees to work remotely where possible. Conscious
that the pandemic may have caused financial pressure we have
launched the Financial well-being series for our employees
together with the Wealth and Personal Banking business, to foster
healthy financial habits. During the World Mental Health Day, we
participated in a global campaign where we held numerous virtual
sessions for employees supported by external experts. Our well-
being index scored 88%, where employees stated that they know
how to obtain support about their mental health and that they are
confident to talk to their line manager about work-life balance and
flexibility (83% score).
Learning and Development
We have launched numerous programs for our people to continue
driving their development through a comprehensive digital
learning platform. We offered numerous programs to our
employees to enhance future skills and leadership abilities. HSBC
University is our one-stop shop platform delivered via an online
portal, providing access to a network of global training centres
and training providers. We have launched My HSBC Career and a
global Mentoring System to help employees take control of their
personal development and career. All our employees are
encouraged to have at least one mentor identified to support them
in their development journey at HSBC. During 2021 we have
delivered 12,814 programs and delivered over 15,161 hours of
training. We have also delivered the 3rd cohort of a one-year
Leadership Program called LEAP for our identified future leaders.
Developing future leaders is critical to our long-term success. The
People Committee conducts bi-annual reviews of the succession
plans of the leadership teams and identify successors for critical
roles.
Managing Change
Our transformation program was launched in June this year to
continue delivering our Safe Growth Strategy and create a bank fit
for the future. We work hard to ensure our employees understand
the need for change and adapt to our ways of working to create a
simpler and customer focused bank. We held numerous sessions
led by senior leadership to communicate these changes and
launched a number of monthly updates to all employees on where
we are on our strategy and achievements. We have offered over
100 roles during the year, which has seen 70 employees
advancing in their careers. We aim to continue providing
programs to retrain and reskill our people to be ready for the ever
increasing pace of change in our industry. 
Listening to our People
We run a Snapshot Survey every six months to have a better
understanding about our employees’ needs. During 2021 we had a
46% response rate which saw an improvement over the previous
semester. In the first quarter of 2021, we cascaded the newly
revised purpose and values through an extensive range of virtual
sessions and discussions across the bank. 75% of employees
stated that they see colleagues demonstrate the values in their day
to day work.
We promote a speak up culture where employees have various
tools and channels they can use to speak up. Our bi-annual
employee survey shows an improvement versus prior semester
with 78% of colleagues stating that they are confident to speak up
when they see behaviours which they consider are wrong. This is
further enhanced by the trust index in line management with 86%
of employees stating they trust their line manager. Our conduct
framework and policies ensures that we deliver fair outcomes for
our people to foster a healthy working environment.
The bank is committed to respect human rights, primarily as they
apply to our employees, our customers and our suppliers.
Businesses do not exist in isolation: they exist to support the
communities they serve. We recognise the duty of States to
protect human rights and the role played by business in respecting
them, in line with the UN Guiding Principles’ (‘UNGPs’) Protect,
Respect and Remedy framework. HSBC Group has signed, or
expressed support for, a number of international codes, as set out
in our 2015 Statement on Human Rights. We primarily reflect
human rights considerations as they apply to our people, our
suppliers and our customers.
Whistleblowing
HSBC encourages a speak up culture where individuals can raise
any concerns about wrongdoing or unethical conduct through the
normal reporting channels without fear of reprisal or retaliation.
However, in certain circumstances it may be necessary for
individuals to raise concerns through more targeted and
confidential channels. For this purpose, a local whistleblowing
reporting policy is in place, which provides an official and
confidential channel for whistleblowing. Our whistleblowing
channel, HSBC Confidential allows colleagues to raise concerns in
line with local laws. All whistleblowing reports received are
investigated in a detailed and independent manner and remedial
action is taken where appropriate. The prevalent themes raised are
in relation to allegations on staff behaviour. 
The oversight of the policy falls within the responsibilities of one of
the Non-Executive Directors and within the remit of the bank’s
Audit Committee.
Health and safety
The maintenance of a safe place of work and business for our
employees, customers and visitors is a key responsibility for all
managers. The local group is committed to proactively manage
health and safety risk through the identification, assessment and
mitigation of hazards that may otherwise result in injury, fire
events and operational failure.
Group policies, standards and guidance for the management of
health and safety are set by the Global Corporate Services
function. Achieving these in the local group is the responsibility of
the Chief Operating Officer, with support and coordination
provided by the Health and Safety Coordinator, together with
Global and Regional Corporate Services.
Global Protective Security continuously monitors potential threats
from terrorism and violent crime and ensures that HSBC maintains
effective measures to protect its staff, buildings, assets and
information.
The local group remains committed to maintaining its readiness
for emerging and foreseeable risks in ensuring health and safety
compliance.
Sustainability
Corporate sustainability is a high priority for businesses today and
at HSBC we have revised and renewed our strategy to ensure we
operate in a responsible manner and provide access to sustainable
finance that will help economies and societies prosper today and
in the future. Being sustainable means building strong
relationships with all our key stakeholders and taking into account
the issues that matter to them. We use our international expertise
to connect our customers to opportunities around the world. We
are powering new solutions to the climate crisis and supporting
the transition to a low-carbon future. We are building an inclusive
organisation that prioritizes well-being, invests in learning and
careers and prepares our customers, employees, suppliers and the
community to be fit for the future. We uphold high standards of
corporate governance and ensure we meet our responsibilities to
society. Through our Sustainability function we have two bodies
responsible for driving this agenda. Our HSBC Malta Foundation
and our Climate Business Council. These two bodies ensure that
all stakeholders are involved in the decision making and execution
of our sustainability strategy. In line with the Group’s strategy, the
Foundation is supporting a number of projects which focus on
Future Skills. The objective of Future Skills is on helping people
develop their employability and financial skills in order to thrive in
the modern world. This year HSBC Malta Foundation also
launched its first Sustainable Finance project with The Malta
Chamber to Help Achieve National Climate Goals. The framework
may be used as a tool for the government and businesses to drive
Report of the Directors
20
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
the transition to a net zero carbon-built environment. The HSBC
Malta Foundation is also supporting an important sustainability
project ‘Establishing Malta’s Framework for a Net Zero Carbon
Building’ which targets the country’s building and construction
sector with the goal of raising standards in energy efficiency and
conservation. The intended framework is inspired by models such
as LEED certification, for example. In 2021, we also approved the
first climate programme project for Malta which will be financed
by the HSBC Malta Foundation and will also be part-financed by
the Parks Department and the Water and Energy Agency. The
project introduces the concept of urban resilience in Malta. This is
in view of the predicted climate change impacts on the islands
including higher temperatures, increased flooding events, the
potential rise in sea-level, and the urgent need to curtail the
increasing Greenhouse Gas (‘GHG’) emissions from urban areas
primarily caused by vehicular traffic.
Our Climate Business Council (‘CBC’) has been set up in 2021 with
the aim of facilitating collaboration and knowledge sharing, and
supporting the Group’s Sustainable Finance and Climate related
initiatives. The CBC drives and monitors the implementation of the
bank’s sustainable finance strategy, It also ensures that the
strategy is fit for purpose and is updated as required. The CBC
provides guidance and resolves issues in developing the
sustainable finance business across the bank. It also determines
the objectives of agreed initiatives and appropriate ownership as
well as ensuring measurement and reporting of progress. The CBC
is chaired by the Chief Executive Officer of the bank and updates
on progress are provided to stakeholders including the local Board
and regional committees for oversight and endorsement of the
strategies and actions.
During the year, the bank launched the Climate Action Network
(CAN). This is a network led by employees of the bank where
different teams from across business lines and functions drive
sustainable projects inside and outside the bank. We had seven
projects launched in 2021 thanks to the commitment of our
employees ranging from environmental to social and sustainable
finance topics. The CAN teams drive various internal learning
initiatives to increase the capabilities of our own employees and
also within the community. During this past year the focus was on
forestation, recycling and responsible consumption. All these
initiatives were led ably by our people who use a central platform
where they share their achievements and successes of their
projects.
Learning and development is key and during the year we launched
a number of Sustainability programs for all employees. The
programs ranged from raising awareness to developing technical
skills for our front line and specialist roles within our control
functions and business lines. This year the senior executives of the
bank went through a two-day program on Sustainable Leadership
delivered by HSBC University in collaboration with Earth watch.
The aim of the program was to increase the awareness, capability
and capacity for leaders to embed sustainability across their
businesses and functions leading to growth opportunities. The
program also had the objective of building a network for
participants so they can work with colleagues and help each other
across the group. It also ensured corporate values and principles
are clearly understood and reconnected leaders with nature to
inspire action. The content of the program covered topics such as
global mega trends and climate change and was enriched by case
studies using climate modelling tools used by the United Nations,
together with a final detailed action plan that will contribute to the
ambition of HSBC in becoming a net zero bank.
The Group and local target is to have 100% of our supply chain
signed up to our Carbon Net Zero Charter by 2030. During
November we held a webinar for our top suppliers focusing on
‘Driving Sustainable Operations and Services with our Partners
and Suppliers’. The aim of this webinar was to share and discuss
best practices and collaborate together to transition to net zero.
Whether our aim is to reduce emissions, deliver low carbon
solutions or adopt new technologies, we want to work together
with our suppliers so that we can achieve this ambition together
and most importantly protect our planet for future generations.
During this webinar we provided our suppliers with an overview of
how we can all benefit from achieving a net zero operation and
give them the tools and insights to help them transition to net
zero.
With regards to energy consumption in 2019 (baseline) HSBC
Bank Malta consumed 4,963 MWh of electricity. Our target is to
reduce this by 50% by 2030. With this in mind, our 2020 target
was to reduce our consumption to 4,738 MWh and we achieved a
consumption of 3,443 MWh, which even exceeds our initial 2022
target.  In 2020 and 2021 building occupation was lower and
therefore consumption was lower due to Covid-19. To maintain
the momentum to achieve our 2030 targets, in 2021 we planned
and implemented more energy saving measures, including more
LED lighting, power saving devices and controls and improved air
conditioning and ventilation systems in a number of our buildings. 
With regard to renewable energy supplies, we are targeting to
source as much energy as possible from renewable sources by
2030. This can be achieved in two ways: generation of our own
energy through Photovoltaic Panels (PV), and also changing
suppliers of consumed energy to a green tariff, which is
challenging in Malta. In 2019 HSBC Bank Malta produced 3.7% of
its energy through PV panels on its buildings, this rose to 5.2% in
2020 with the installation and connection of further PV panels at
Operations Centre in Qormi. By the end of 2021, we reduced the
number of desk phones by 73%, printers by 21% and mobile
devices by 21%, whilst at the same time providing more digital
solutions and new tools that are more sustainable.
We have accelerated our retail sustainable solutions by providing
attractive rates on green loans, replacing over 100,000 credit cards
using recycled plastic. We have also launched a range of
responsible investment funds managed by HSBC Global Asset
Management which exceeded €14 million in subscriptions. We
launched a number of education campaigns for our retail clients
and Small to Medium Enterprises on how to transition to a greener
business model. We held student campaigns which offered
attractive student loans to acquire more environmentally friendly
modes of transportation. We have started internal discussions to
increase education for our employees on their pension plans and
the importance of sustainable investment. 
Within Commercial Banking, we are committed to helping
customers to transition to a more sustainable business. Our
approach is multi-faceted, because we know that our customers
face different challenges and opportunities and that there is no
‘one size fits’ all solution. Our Green Loans and Trade Finance
solutions are designed to finance a range of projects and activities,
including renewable energy, waste prevention/reduction, green
buildings, energy efficiency, sustainable water and wastewater
management. Our Relationship Managers receive ongoing training
enabling them to provide customers with expert guidance, and are
engaging actively with their customers to start discussions and
identify areas where we can support customers to transition to net
zero.
EU Taxonomy economic performance indicators1
Climate change mitigation and climate change
adaptation objectives
In order to meet the European Union’s climate and energy targets
for 2030, the European Commission (‘EC’) has set out the EU
Taxonomy classification system, establishing a list of
environmentally sustainable economic activities. The EU
Taxonomy provides companies, investors and policymakers with
appropriate definitions for which economic activities can be
considered environmentally sustainable. In 2021, the EC adopted
the Delegated Act supplementing Article 8 of the Taxonomy
Regulation (‘the Disclosures Delegated Act’)2. Under these
regulations, we are required to provide information to investors
about the environmental performance of our assets and economic
activities.
The Disclosures Delegated Act applies from 1 January 2022 on a
phased approach and covers the 2021 annual reporting period.
The first year of reporting is related to Taxonomy-eligibility of
economic activities and serves to help prepare for the second
phase of reporting related to Taxonomy-alignment of economic
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
21
activities (i.e. disclosure of the key performance indicators) from 
1 January 2024. Taxonomy-eligible does not give any indication of
the environmental performance and sustainability of the economic
activity.
In this first year of disclosure, information is provided on our
counterparty exposures toward Taxonomy ‘eligible’ economic
activities. This helps to prepare for the second phase of
disclosures related to Taxonomy-alignment of economic activities
(i.e. disclosure of the key performance indicators) from 1 January
2024 when Taxonomy ‘eligible’ economic activities will be
assessed to determine whether they are environmentally
sustainable (i.e. Taxonomy ‘aligned’) against technical criteria
The table presented below is based on the methodology and
content specified in the Disclosures Delegated Act as at the
reporting date.
1Taxonomy Regulation EU 2020/852.
2Commission Delegated Regulation (EU) 2021/2178.
31 Dec 2021
Mandatory as proportion of
total assets
Voluntary as proportion of
total assets
%
%
Exposures towards taxonomy relevant sectors (Taxonomy eligible)
35
35
Exposures towards taxonomy non-relevant sectors (Taxonomy non-eligible)
2
2
Exposures to Counterparties not subject to NFRD3 disclosure obligations
18
18
Exposures to central governments, central banks and supranational issuers and derivatives
20
20
Trading portfolio and On-demand interbank loans
4
4
Other assets
21
21
Total Assets
100
100
3Non-Financial Reporting Directive (NFRD) - Directive 2013/34/EU.
Scope of consolidation
The ratios in the above table represent exposures and balances as
a proportion of total assets for the principal operating entity within
the local group’s prudential scope of consolidation as at
31 December 2021. On this basis our subsidiaries engaged in
insurance activities are excluded from the prudential
consolidation.
Assets in scope
The calculation of the ratios for taxonomy-eligible economic
activities and taxonomy non-eligible activities include on-balance
exposures covering loans and advances, debt securities and equity
instruments not held for trading. This includes exposures to
undertakings such as large EU banks, asset managers, insurance
companies and issuers that are subject to Non-Financial Reporting
disclosure4 obligation.
Other assets, which primarily include, cash, tangible and
intangible assets, are excluded from the taxonomy framework and
therefore cannot be assessed for taxonomy eligibility. On this
basis, these assets are excluded from the eligibility assessment.
However, these assets are included in the total assets used in the
denominator for the calculation of the ratios.
4NFRD as per Article 19a or Article 29a of Directive 2013/34/EU.
Taxonomy-eligible economic activities
Taxonomy-eligible economic activities are those activities which
can be assessed in future disclosures as either environmentally
sustainable.
Eligibility related disclosures shall be based on actual information
provided by the financial or non-financial undertakings.
The classification of environmentally sustainable is based on
criteria laid out in the Taxonomy Regulation. An eligible economic
activity is defined in the Delegated Acts and in some instances
corresponds to one or more specific Nomenclature of Economic
Activities (‘NACE’) code. The assessment of taxonomy eligibility
for mandatory disclosures is made using the specific description of
the activity provided in the Delegated Acts.
As a result, the total exposures to taxonomy eligible economic
activities ratio within mandatory disclosures is limited to
exposures to green lending, green bonds, and property-related
lending.
Taxonomy non-eligible economic activities
Taxonomy non-eligible economic activities are those activities
which cannot be assessed as environmentally sustainable or not.
Included in taxonomy non-eligible are those assets in scope that
cannot be assessed for taxonomy eligibility, either due to activities
not covered by the taxonomy framework, limited data availability
from our counterparties or lack of required information.
Total exposures to undertakings not subject to NFRD
Exposures to undertakings that are not obliged to publish Non-
Financial Reporting5 information have been excluded from the
assessment of taxonomy-eligible economic activities. The total of
these exposures as a proportion of total assets has been disclosed
as a separate line item in the table.
5NFRD as per Article 19a or Article 29a of Directive 2013/34/EU
Data limitations
The bank relies on a number of data sources to determine
Taxonomy eligible and non-eligible exposures and exposures not
subject to NFRD. Availability of data and improvements in data
quality over time, as firms adopt the Taxonomy requirements for
their own disclosures, could lead to differences in the data
reported in future years as compared to the current year.
The bank will continue to engage with customers, market data
providers and standard setters to improve the quality and
completeness of our Taxonomy data as we develop our
capabilities to assess the Taxonomy alignment of our portfolios in
preparation for future Taxonomy reporting requirements from
1 January 2024.
In determining the methodology for identifying Taxonomy-eligible
and non-eligible exposures and exposures not subject to NFRD it
has been necessary to make some judgements, taking into
account data availability. Methodologies will develop over time to
align with changes in market practice and regulation. In particular,
detailed below are key judgments and assumptions made:
•Counterparties which are subject to NFRD are large public
interest undertakings with more than an average of 500
employees during the financial year and incorporated within the
European Union. Due to data limitations, it has not been
possible to assess all the criteria required to determine the
NFRD status of an individual counterparty. Instead, reliance has
been placed upon a simplification using the available data, as
well as a sample-based review of the largest counterparties by
exposure. The counterparty data considered in making an
assessment included, where available: country of incorporation,
customer group by global business segment, NACE code,
turnover, and number of employees. 
•Eligibility ratios have been reported in a combined manner for
the two Taxonomy objectives adopted as of 1 January 2022:
climate change mitigation and climate change adaptation.
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Additional voluntary disclosures
Estimates and proxies are not allowed to be used for the
mandatory reporting under Article 8 of the Taxonomy Regulation. 
We have therefore included additional disclosures on a voluntary
basis. The basis of preparation, methodology and explanation
supporting our voluntary disclosures is set out below.
Taxonomy-eligible economic activities
The Disclosures Delegated Act entered into force from 1 January
2022 based on 31 December 2021 data for both financial and non-
financial undertakings.
Since this is the first year of reporting under the EU taxonomy,
financial and non-financial undertakings have not yet reported on
their taxonomy eligibility related disclosures. As a result, to
determine the eligibility of exposures for the voluntary disclosures,
we have relied on the NACE code of the principal activity of the
immediate counterparty, except for certain types of lending and
investing where the specific use of proceeds is known and relates
to eligible activities or does not need to rely on data from the
counterparty.
Where we have relied on the NACE code of the principal activity to
determine the counterparty’s eligibility, we consider this to be an
estimate and have included these exposures in the additional
voluntary disclosures. In addition, loans collateralised by
commercial property to undertakings not subject to NFRD have
been included on a voluntary basis as taxonomy eligible.
Exposures to central governments, central banks, supranational
issuers, held for trading derivatives and on-demand interbank
loans have been included in voluntary disclosures on the same
basis and methodology as the mandatory disclosures. Other retail
exposures and other assets are included in the same way as
mandatory disclosures.
Financial Crime Compliance
In 2021 the bank continued to focus on embedding its financial
crime risk management control framework, and sustain its
capability through ongoing training, oversight and governance.
We believe that the enforcement of high compliance standards is
a competitive advantage, and is essential to our success and that
of the jurisdiction.
Anti-bribery and corruption
HSBC Malta and the wider HSBC Group remain committed to
maintaining high standards of ethical behaviour and have zero
tolerance towards bribery and corruption. HSBC complies with all
anti-bribery and corruption laws in all markets and jurisdictions
including the UK Bribery Act, US Foreign Corrupt Practices and
Hong Kong Prevention of Bribery Ordnance.
HSBC Malta adheres to the HSBC Group Anti-Bribery and
Corruption compliance programme and policies which are
overseen by the HSBC Holdings plc Board. HSBC requires all
employees, including the Board of Directors and Associated
Persons, to comply with the principles in the policy in the
performance of their services for or on behalf of HSBC.
All HSBC entities and individuals are required by Group Policy to
apply controls in order to protect against bribery and corruption
risks. All HSBC staff undergo mandatory Anti-Bribery and
Corruption training annually. HSBC also maintains clear whistle
blowing policies and processes, to ensure that individuals can
confidentially report concerns with no fear of retribution, confident
that they will be investigated and remediated appropriately.
As part of its risk management, HSBC Malta performs an annual
assessment of the anti-bribery and corruption inherent and
residual risk to understand if any new risks have been identified
and ratings revisited accordingly. Risk evaluation takes into
consideration various pillars related to anti-bribery and corruption
including Employee, Third Party, Strategic and Customer Risks.
Risk management
Our Approach to Risk Management
We recognise the importance of a strong culture, which refers to
our shared attitudes, values and standards that shape behaviours
related to risk awareness, risk taking and risk management. All our
people are responsible for the management of risk, with the
ultimate accountability residing with the Board.
We seek to build our business for the long term by balancing
social, environmental and economic considerations in the
decisions we make. Our strategic priorities are underpinned by our
endeavour to operate in a sustainable way. This helps us to carry
out our social responsibility and manage the risk profile of the
business. We are committed to managing and mitigating climate-
related risks, both physical and transitional, and continue to
incorporate consideration of these into how we manage and
oversee risks internally and with our customers.
The following principles guide the local group’s overarching
appetite for risk and determine how our businesses and risks are
managed.
Financial position
We aim to maintain a strong capital position, defined by regulatory
and internal capital ratios. We carry out liquidity and funding
management on a stand-alone basis.
Operating model
We seek to generate returns in line with a conservative risk
appetite and strong risk management capability. We aim to deliver
sustainable earnings and consistent returns for shareholders.
Business practice
We have zero tolerance for any of our people knowingly engaging
in any business, activity or association where foreseeable
reputational risk or damage has not been considered and/or
mitigated. We have no appetite for deliberately or knowingly
causing detriment to consumers, or incurring a breach of the letter
or spirit of regulatory requirements. We have no appetite for
inappropriate market conduct by any member of staff or by any
Group business.
Risk Management
We recognise that the primary role of risk management is to
protect our customers, business, colleagues, shareholders and the
communities that we serve, while ensuring we are able to support
our strategy and provide sustainable growth. This is supported
through our three lines of defence model.
The local group is exposed to a mixed blend of risks and hence
operates a risk management strategy with the objective of
controlling and minimising their impact on the financial
performance and position of the local group. An established risk
governance framework and ownership structure ensures oversight
of accountability for the effective management of risk. This
framework fosters the continuous monitoring of the risk
environment and an integrated evaluation of risks and their
interactions. This framework designed to provide appropriate risk
monitoring and assessment.
Risk appetite
Our risk appetite defines our desired forward-looking risk profile,
and informs the strategic and financial planning process. It
provides an anchor between our lines of business and the Risk and
Finance functions, helping to enable our senior management to
allocate capital, funding and liquidity optimally to finance growth,
while monitoring exposure and the cost impacts of managing non-
financial risks. It also helps to develop aligned people and system
capabilities.
The Board sets the local group’s strategy, risk appetite, operating
plans and performance targets, thereby playing an essential role in
embedding a risk culture within the organisation. The Board
delegates the day-to-day risk management responsibilities to
individuals within the senior management team. These individuals
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
23
are accountable for their assigned risks, and report and escalate as
necessary through the risk governance structures.
The Risk Committee is a committee of the Board, focused on risk
governance, and has responsibility for oversight and advice to the
Board on, inter alia, the bank’s risk appetite, tolerance and
strategy, systems of risk management, internal control and
compliance, as well as providing a forward-looking view of risks
and their mitigation. The Risk Committee maintains and develops
a supportive culture in relation to the management of risk,
appropriately embedded by executive management through
procedures, training and leadership actions.
In carrying out its responsibilities, the Risk Committee is closely
supported by the Chief Risk Officer, the Chief Financial Officer, the
Chief Compliance Officer, and the Head of Internal Audit, who
together with other business functions, assess and mitigate risks
within their respective areas of responsibility.
Our risk appetite is expressed in both quantitative and qualitative
terms
The Board reviews and approves the banks’ risk appetite on a
regular basis to make sure it remains fit for purpose. Risk appetite
is considered, developed and enhanced through:
•risks that we accept as part of doing business, such as credit
risk, market risk, and treasury risk, which are controlled
through both active risk management and our risk appetite;
•risks that we incur as part of doing business, such as non-
financial risks, which are actively managed to remain within an
acceptable appetite
•an alignment with our strategy, purpose, values and customer
needs;
•trends highlighted in other risk reports;
•communication with risk stewards on the developing risk
landscape;
•strength of our capital, liquidity and balance sheet;
•compliance with applicable laws and regulations;
•effectiveness of the applicable control environment to mitigate
risk, informed by risk ratings from risk control assessments;
•functionality, capacity and resilience of available systems to
manage risk; and
•the level of available staff with the required competencies to
manage risks.
We formally articulate our risk appetite through our risk appetite
statement (‘RAS’). Setting out our risk appetite ensures that we
agree a suitable level of risk for our strategy. In this way, risk
appetite informs our financial planning process and helps senior
management to allocate capital to business activities, services and
products.
The RAS consists of qualitative statements and quantitative
metrics, covering financial and non-financial risks. It is applied to
the development of business line strategies, strategic and business
planning and remuneration and reported to the Risk Management
Meeting (‘RMM’) alongside key risk indicators to support targeted
insight and discussion on breaches of risk appetite and associated
mitigating actions. This reporting allows risks to be promptly
identified and mitigated, and escalated to the Risk Committee and
Board.
In 2021, we continued to evolve our risk appetite by adapting
aspects of our risk appetite statement to ensure we remained able
to support our customers and strategic goals against the ongoing
backdrop of the Covid-19 outbreak. A specific emphasis was
placed on capital and liquidity to ensure the Bank could withstand
extreme but plausible stress, and had adequate capacity to
provide increasing levels of financial support to customers.
Associated non-financial risks were reviewed and, where
applicable, processes and controls were enhanced to
accommodate increases in lending volumes and help our people
continue to manage the lending process from a home
environment.
The financial impact of Covid-19 is apparent, as can be seen form
the increased Wholesale Non-Performing Exposure portfolio, albeit
that the ECL impact was muted, given provisions taken in 2020.
These exposures are subject to close monitoring and management
actions.
Stress tests
We regularly conduct stress tests to assess the resilience of our
balance sheet and our capital adequacy, as well as to provide
actionable insights into how key elements of our portfolios may
behave during crises. Stress tests are used to calibrate our risk
appetite and to review the robustness of our strategic and
financial plans, helping to improve the quality of management’s
decision making. Stress testing analysis assists management in
understanding the nature and extent of vulnerabilities to which the
bank is exposed. The results from the stress tests also drive
recovery and resolution planning to enhance the group’s financial
stability under various macroeconomic scenarios. Risk assessment
through internal stress tests is used to assess the impacts of
macroeconomic, geopolitical and other HSBC-specific risks. The
selection of stress scenarios is based upon the identification and
assessment of our top and emerging risks identified and our risk
appetite.
In 2021, the local group participated in the European Banking
Authority (‘EBA’) stress test exercise.
Additionally, we conducted a range of internal stress tests during
2021. These included stress tests to assess the ongoing impacts of
the Covid-19 crisis and assessment of the resilience of key balance
sheet metrics including capital adequacy. We regularly review key
economic variables and their impact on key sectors to understand
potential vulnerabilities in our balance sheet and to identify
appropriate mitigating actions. We continue to monitor emerging
geopolitical, economic and environmental risks impacting the
bank’s capital adequacy and liquidity. Our balance sheet and
capital adequacy remain resilient based on internal stress test
outcomes.
Covid-19
The Covid-19 outbreak and its effect on the global economy
continues to affect our customers and our performance, and the
future effects of the outbreak remain uncertain, albeit that
indications are that the position may be improving as a result of
vaccination programmes. The outbreak necessitated governments
to respond at unprecedented levels to protect public health, local
economies and livelihoods.
In response to the crisis, the Maltese Government and Central
Bank of Malta deployed, and continue to deploy, extensive
measures to support households and corporates. Measures
implemented by the Maltese Government include income support
to households and funding support to corporates, while measures
taken by the Central Bank of Malta include support to funding
markets. These measures are expected to be unwound gradually
as restrictions on mobility ease and as economic activity
increases.
Throughout the Covid-19 outbreak, we have continued to support
our customers and adapt our operational processes. We have
maintained high levels of service throughout the Covid-19
outbreak and our people, processes and systems have responded
to the changes needed and increased the workload in serving our
customers through this time.
Market-specific measures introduced in 2020 to support our
personal and business customers remained in place in 2021,
including mortgage assistance, payment holidays, the waiving of
certain fees and charges, and liquidity relief for businesses facing
market uncertainty and supply chain disruption. These measures
have been well received and we remain responsive to our
customers' changing needs.
Overall the balance sheet and liquidity of the bank has remained
strong. This enabled us to support our customers both during
periods of government lockdowns and with signs of economic
recovery when government lockdowns were eased.
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
There remains a degree of uncertainty associated with economic
forecasts in the current environment and significant risks remain,
especially when the government support schemes are unwound in
2021.
The ongoing impact of the outbreak on the long-term prospects of
businesses in certain sectors is uncertain and may lead to further
increases in non-performing exposures, and thus ECL.
In response to the Covid-19 outbreak, we have successfully
implemented business continuity plans and continued to maintain
service standards with minor disruption to customers throughout
the dynamic pandemic situation. We did not experience any major
impacts to the supply chain from our third party service providers
due to Covid-19. There remain significant uncertainties in
assessing the duration of the Covid-19 outbreak and its longer-
term impact. The actions taken by the Maltese government and
the central bank provide an indication of the potential severity of
the downturn and post-recovery environment, which from a
commercial, regulatory and risk perspective could be significantly
different to past crises and persist for a prolonged period. A
continued prolonged period of significantly reduced economic
activity as a result of the impact of the outbreak would have a
materially adverse effect on our operations, prospects, liquidity,
capital position and credit ratings. We continue to monitor the
situation closely, and given the novel or prolonged nature of the
outbreak, additional mitigating actions may be required.
Our risk management framework
The following diagram and descriptions summarises key aspects
of the risk management framework, including governance,
structure, risk management tools and our culture, which together
help align employee behaviour with risk appetite.
Key components of our risk management framework
HSBC Values and risk culture
Risk governance
Non-executive risk governance
The Board approves the Banks’s risk appetite, plans and performance
targets. It sets the ‘tone from the top’ and is advised by the Risk
Committee
Executive risk governance
Our executive risk governance structure is responsible for the enterprise-
wide management of all risks, including key policies and frameworks for
the management of risk within the Bank.
Roles and
responsibilities
Three lines of defence model
Our ‘three lines of defence’ model defines roles and responsibilities for
risk management. An independent Risk and Compliance function helps
ensure the necessary balance in risk/return decisions.
Processes and tools
Risk appetite
The Bank has processes in place to identify/assess, monitor, manage
and report risks to help ensure we remain within our risk appetite.
Enterprise-wide risk management tools
Active risk management: identification/assessment,
monitoring, management and reporting
Internal controls
Policies and procedures
Policies and procedures define the minimum requirements for the
controls required to manage our risks.
Control activities
Operational and resilience risk management defines minimum standards
and processes for managing operational risks and internal controls.
Systems and infrastructure
The Group has systems and/or processes that support the identification,
capture and exchange of information to support risk management
activities.
Our responsibilities
All our people are responsible for identifying and managing risk
within the scope of their roles. Roles are defined using the three
lines of defence model, which takes into account our business and
functional structures as described below.
Three lines of defence
To create a robust control environment to manage risks, we use
an activity-based three lines of defence model. This model
delineates management accountabilities and responsibilities for
risk management and the control environment.
The model underpins our approach to risk management by
clarifying responsibility and encouraging collaboration, as well as
enabling efficient coordination of risk and control activities. The
three lines of defence are summarised below:
•The first line of defence owns the risks and is responsible for
identifying, recording, reporting and managing them in line
with risk appetite, and ensuring that the right controls and
assessments are in place to mitigate them.
•The second line of defence challenges the first line of defence
on effective risk management, and provides advice and
guidance in relation to the risk.
•The third line of defence is our Global Internal Audit function,
which provides independent assurance that our risk
management approach and processes are designed and
operating effectively.
Our Risk and Compliance functions are responsible for the local
Group’s risk management framework. This responsibility includes
establishing global policy, monitoring risk profiles, and identifying
and managing forward-looking risk. Risk and Compliance is made
up of sub-functions covering all risks to our business. Forming part
of the second line of defence, the Risk and Compliance function is
independent from the global businesses, including sales and
trading functions, to provide challenge, appropriate oversight and
balance in risk/return decisions.
Responsibility for minimising both financial and non-financial risk
lies with our people. They are required to manage the risks of the
business and operational activities for which they are responsible.
We maintain adequate oversight of our risks through our various
specialist risk stewards and the collective accountability held by
our chief risk officers.
We have continued to strengthen the control environment and our
approach to the management of non-financial risk, as broadly set
out in our risk management framework. The management of non-
financial risk focuses on governance and risk appetite, and
provides a single view of the non-financial risks that matter the
most and the associated controls. It incorporates a risk
management system designed to enable the active management
of non-financial risk. Our ongoing focus is on simplifying our
approach to non-financial risk management, while driving more
effective oversight and better end-to-end identification and
management of non-financial risks. This is overseen by the
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
25
Operational and Resilience Risk function, reporting to the Chief
Risk Officer.
Stress testing and recovery planning
We operate a wide-ranging stress testing programme that is a key
part of our risk management and capital and liquidity planning.
Stress testing provides management with key insights into the
impact of severely adverse events on the Group, and provides
confidence to regulators on the Group’s financial stability.
Our stress testing programme assesses our capital and liquidity
strength through a rigorous examination of our resilience to
external shocks. As well as undertaking regulatory-driven stress
tests, we conduct our own internal stress tests in order to
understand the nature and level of all material risks, quantify the
impact of such risks and develop plausible business-as-usual
mitigating actions.
Internal stress tests
Our internal capital assessment uses a range of stress scenarios
that explore risks identified by management. They include
potential adverse macroeconomic, geopolitical and operational
risk events, as well as other potential events that are specific to
HSBC.
The selection of stress scenarios is based upon the output of our
identified top and emerging risks and our risk appetite. Stress
testing analysis helps management understand the nature and
extent of vulnerabilities to which the Bank is exposed. Using this
information, management decides whether risks can or should be
mitigated through management actions or, if they were to
crystallise, be absorbed through capital and liquidity. This in turn
informs decisions about preferred capital and liquidity levels and
allocations.
We also conduct reverse stress tests to understand potential
extreme conditions that would make our business model non-
viable. Reverse stress testing identifies potential stresses and
vulnerabilities we might face, and helps inform early warning
triggers, management actions and contingency plans designed to
mitigate risks.
Recovery and resolution plans
Recovery and resolution plans form part of the integral framework
safeguarding the Bank’s financial stability. The recovery plan
together with the stress testing help HSCB Bank Malta p.l.c.
understand the likely outcomes of adverse business or economic
conditions and in the identification of appropriate management
actions to enable an orderly recovery. During 2021, the Bank
continued to develop its recovery and resolution capabilities in line
with both the SRB and BoE resolvability requirements. The Bank is
committed to further developing its recovery and resolution
capabilities to ensure it meets current and future requirements as
well integrates the evolution of its business.
Key Risks
The most important types of financial risk comprise credit risk,
market risk and liquidity risk. Owing to the group’s insurance
operation in Malta, the local group is also exposed to insurance
risk. A key emerging risk is that of climate change, and how this
will shape risk management in the coming years
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty
fails to meet an obligation under a contract. It arises principally
from lending, trade finance and treasury business, mainly through
the holdings of debt securities, but also from off-balance sheet
products such as guarantees. The local group has standards,
policies and procedures dedicated to control and monitor the risk
arising from all such activities. Within the overall framework of the
local group policy, an established risk management process is in
place, encompassing credit approvals, the control of exposures,
credit policy direction to business units, and the monitoring and
reporting of exposures both on an individual and a portfolio basis
(which includes the management of adverse trends). Management
is responsible for the quality of its credit portfolios and follows a
credit process involving delegated approval authorities and credit
procedures, the objective of which is to build and maintain risk
assets of high quality. Regular reviews are undertaken to assess
and evaluate levels of risk concentrations by market sector and
product.
The bank’s credit risk rating systems and processes differentiate
exposures in order to highlight those with greater risk factors and
higher potential severity of loss. In the case of individually
significant accounts, risk ratings are reviewed regularly and any
amendments are implemented promptly.
Concentrations of credit risk arise when a number of
counterparties or exposures have comparable economic
characteristics, or such counterparties are engaged in similar
activities, or operate in the same geographical areas or industry
sectors, so that their collective ability to meet contractual
obligations is uniformly affected by changes in economic, political
or other conditions. The bank uses a number of controls and
measures to minimise undue concentration of exposure in its
portfolios across industry, country and customer groups. These
include portfolio and counterparty limits, approval and review
controls, and stress testing.
Liquidity risk
Liquidity risk is the risk that the local group does not have
sufficient financial resources to meet its financial obligations when
they fall due or will have to do so at excessive cost. This risk
principally arises from mismatches in the timing of cash flows.
Funding risk (a form of liquidity risk) arises when the liquidity
needed to fund illiquid asset positions cannot be obtained on the
expected terms and when required. The objective of the local
group’s liquidity and funding management is to ensure that all
foreseeable funding commitments and deposit withdrawals can be
met when due. To this end, the local group maintains a diversified
and stable funding base. The funding base comprises core
personal and corporate customer deposits, wholesale funding and
portfolios of highly liquid assets with the objective of enabling the
local group to respond quickly and smoothly to unforeseen
liquidity requirements.
The bank maintains strong liquidity positions and manages the
liquidity profiles of assets, liabilities and commitments with the
objective of ensuring that cash flows are balanced appropriately
and that all anticipated obligations can be met when due.
Interest rate risk
Overview
Banking book interest rate risk is the risk of an adverse impact to
earnings or capital due to changes in market interest rates.
Interest rate risk in the banking book is generated by non-traded
assets and liabilities and is monitored and controlled at Group level
by Group Treasury and at HSBC Bank Malta p.l.c. level by Asset,
Liability and Capital Management. Group Treasury and ALCM
functions are supervised by RMM who approve risk limits used in
the management of interest rate risk. Banking book interest rate
risk is transferred to and managed by Markets Treasury.
Governance
Group Treasury and ALCM monitor and control non-traded interest
rate risk as well as reviewing and challenging the lines of business
prior to the release of new products and proposed behavioural
assumptions used for hedging activities. ALCM are also
responsible for maintaining and updating the transfer pricing
framework, informing ALCO of the overall banking book interest
rate risk exposure and managing the balance sheet in conjunction
with Markets Treasury.
The internal transfer pricing framework is constructed to ensure
that structural interest rate risk, arising due to differences in the
re-pricing timing of assets and liabilities, is transferred to Markets
Treasury and business lines are correctly allocated income and
expense based on the products they write, inclusive of activities to
mitigate this risk.
The internal transfer pricing framework is governed by Asset,
Liability and Capital management committee (‘ALCO’) whose
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
responsibility it is to define each operating entities transfer pricing
curve and review and approve the transfer pricing policy, including
behaviouralisation assumptions used for products where there is
either no defined maturity or customer optionality exists. HSBC
Bank Malta p.l.c.’s ALCO is responsible for monitoring and
reviewing the bank's overall structural interest rate risk position.
Interest rate behaviouralisation policies have to be formulated in
line with the Group’s behaviouralisation policies and approved at
least annually by ALCO.
Non-traded assets and liabilities are transferred to Markets
Treasury based on their re-pricing and maturity characteristics. For
assets and liabilities with no defined maturity or re-pricing
characteristics behaviouralisation is used to assess the interest
rate risk profile.
Markets Treasury manages the banking book interest rate
positions transferred to it within the Markets Risk limits approved
by RMM. Markets treasury will only receive non-trading assets
and liabilities as long as they can economically hedge the risk they
receive. Any interest rate risk which Markets Treasury cannot
economically hedge is not transferred and will remain within the
business line where the risk is originated.
Key risk Drivers
The bank’s interest rate risk in the banking book can be
segregated into the following drivers:
Gap risk – also known as Duration Risk or Repricing Risk – arises
from the term structure of banking book instruments, and
describes the risk arising from the timing of instruments’ rate
changes. The extent of gap risk depends on whether changes to
the term structure of interest rates occur consistently across the
yield curve (parallel risk) or differentially by period (non-parallel
risk);
Basis risk describes the impact of relative changes in interest rates
for financial instruments that have similar tenors but are priced
using different interest rate indices; and
Option risk arises from optional elements embedded in a bank’s
assets, liabilities and/or off-balance sheet items, where the bank or
its customer can alter the level and timing of their cash flows.
Exposures
HSBC Bank Malta p.l.c. is exposed to a change of Eurozone
interest rates curve on banking operations and structural elements
of the balance sheet and would see its net interest income
decrease by EUR 19 million on one year as of 31 December 2021
for an immediate decrease of 100 basis points. The impact of an
up 200 basis points scenario on shareholders’ equity would be
EUR -30 million at 31 December 2021.
The historically low rates environment, should it last longer, would
keep on burdening the banking book’s Net Interest Margin.
Market risk
Market risk is the risk that movements in market risk factors,
including foreign exchange rates, interest rates and market prices
will impact the local group’s income or the value of its portfolios.
Exposure to market risk arises from positions that primarily
emanate from the interest rate management of the local group’s
retail and commercial banking assets and liabilities and financial
investments. The objective of the local group’s market risk
management is to manage and control market risk exposures in
order to optimise return on risk while maintaining a market profile
consistent with the local group’s status as a premier provider of
financial products and services. Market risk is managed and
controlled through risk appetite setting and limits approved by
HSBC Holdings and the global businesses. These limits are
allocated across business lines and are for portfolios, products and
risk types, with market liquidity being a principal factor in
determining the level of limits set. The bank has an independent
market risk management and control function which is responsible
for measuring market risk exposures in accordance with policies,
and monitoring and reporting these exposures against the
prescribed limits on a daily basis.
Insurance risk
The local group operates an integrated bancassurance model
which provides wealth and protection insurance products
principally for customers with whom the local group has a banking
relationship. Insurance products are sold predominantly by WPB.
The subsidiary also holds a portfolio of unit-linked investment
products and non-linked insurance products that were transferred
from HSBC Life (Europe) Limited during 2014. The majority of the
risk in the local group’s insurance business derives from
manufacturing activities and can be categorised as insurance risk
and financial risk. Insurance risk is the risk, other than financial
risk, of loss transferred from the holder of the insurance contract
to the issuer, the local group’s insurance subsidiary company.
The risk under any insurance contract is the possibility that the
insured event occurs and the uncertainty of the amount of the
resulting claim. By the very nature of an insurance contract, this
risk is random and therefore unpredictable. The principal risk that
the local group faces under its insurance contracts is that the
actual claims and benefit payments exceed the carrying amount of
the insurance liabilities. This could occur because the frequency or
severity of claims and benefits are greater than estimated.
Insurance events are random and the actual number and amount
of claims and benefits will vary from year to year and from the
estimate established using statistical techniques.
Experience shows that the larger the portfolio of similar insurance
contracts, the smaller the relative variability of the expected
outcome will be. The local group uses reinsurance appropriately to
reduce variability of the expected outcome.
Climate Risk
Climate-related risks
Climate change can have an impact across HSBC’s risk profile
through both transition and physical channels. Transition risk can
arise from the move to a low-carbon economy, through policy,
regulatory and technological changes. Physical risk can arise
through increasing severity and/or frequency of severe weather or
other climatic events, such as rising sea levels and flooding.
These have the potential to cause both idiosyncratic and systemic
risks, resulting in potential financial and non-financial impacts for
HSBC. Financial impacts could materialise if transition and
physical risks impact the ability of borrowers to repay their loans.
Non-financial impacts could materialise if our own assets or
operations are impacted by extreme weather or chronic changes
in weather patterns, or as a result of business decisions to achieve
our climate ambition.
We are subject to financial and non-financial climate-related and
environmental risk, which increased over 2021, primarily due to
the pace and volume of policy and regulatory changes, particularly
on climate risk management, stress testing and scenario analysis
and disclosures. If we fail to meet evolving regulatory expectations
or requirements on climate risk management, this could have
regulatory compliance and reputational impacts.
We also face increased reputational, legal and regulatory risk as
we make progress towards HSBC Group’s net zero ambition, with
stakeholders placing greater focus on our actions, such as the
development of climate-related policies and investment decisions.
We will face additional reputational risk if we are perceived to
knowingly or unknowingly mislead stakeholders regarding our
climate strategy, the climate impact of a product or service, or
regarding the commitments of our customers. To track and report
on our progress towards achieving our ambition, we rely on
internal and external data sources using guidance provided by
certain industry standards.
There is increasing evidence that a number of nature-related risks
beyond climate change – which include risks that can be
represented more broadly by the economic dependency on nature
– can and will have significant economic impact. These risks arise
when the provision of natural services – such as water availability,
air quality, and soil quality – is compromised due to
overpopulation, urban development, natural habitat and
ecosystem loss, and other environmental stresses beyond climate
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
27
change. They can manifest themselves in a variety of ways,
including through macroeconomic, market, credit, reputational,
legal and regulatory risks, for both HSBC and our customers.
How climate risk can impact our customers
Climate change could impact our customers in two main ways.
Firstly, customer business models may fail to align to a low-carbon
economy, which could mean, for example, that new climate-
related regulation may have a material impact on their business.
Secondly, extreme weather events or chronic changes in weather
patterns may damage our customers’ assets leaving them unable
to operate their business or live in their home.
One of the most valuable ways we can help our customers
navigate the transition challenges and to become more resilient to
the physical impacts of climate change is through financing and
investment. To do this effectively, we must understand the risks
they are facing.
The table below summarises the key categories of transition and
physical risk, with examples of how our customers might be
affected financially by climate change and the shift to a low-
carbon economy.
Climate risk
Main causes of financial impact on customers
Transition
Policy and
legal
Mandates on, and regulation of, existing
products and services
Litigation from parties who have suffered
from the effects of climate change
Technology
Replacement of existing products with lower
emission options
End-demand
(market)
Changing consumer behaviour
Reputational
Increased scrutiny following a change in
stakeholder perceptions of climate-related
action or inaction
Physical
Acute
Increased frequency and severity of weather
events
Chronic
Changes in precipitation patterns
Rising temperatures
Integrating climate into enterprise-wide risk
management
Our approach to climate risk management is aligned to our Group-
wide risk management framework and three line of defence model
to ensure robust oversight of climate risk. This approach ensures
the Board and senior management have visibility and oversight of
our key climate risks.
Climate Risk Appetite
Our climate risk appetite, which is recommended and approved by
the Board defines the measures we intend to take to enable our
climate ambition and meet our commitments to regulators,
investors and stakeholders. Our measures are focused on the
oversight and management of our key climate risks - wholesale
credit risk, retail credit risk, strategic risk (reputational), resilience
risk and regulatory compliance. Our future ambition for our
climate risk appetite is to:
•Adapt the RAS metrics to incorporate forward looking
transition plans and net zero commitments
•Introduce into the 2022 Risk Appetite Statement (with effect
from March 2022) key management information on our
Wholesale exposures to the 6 key sectors most impacted by
climate change (see below). This will then be included as a
formal risk appetite / tolerance metric in the second half of the
year.
•Broaden the scope of risks to include climate considerations in
Market Risk, Liquidity Risk, Legal Risk and Environmental Risk
management.
We will continue to enhance our climate risk management
capabilities throughout 2022, this will include further roll-out of
training, refining our risk appetite and increasing the availability
and quality of data so that new metrics can be developed to
strengthen how we assess and manage climate risk and
opportunities.
Climate Risk Governance and Reporting
Our key climate risks are reported and governed through our
climate risk governance structure.
In October 2021 we set up the Climate Business Council, with the
remit of this body being to manage inter alia the sustainable
finance strategy of the local group, as well as cover climate and
ESG risks. Given the importance of climate risk, in February 2022 a
separate body, the Climate & ESG Risk Oversight Forum, was set
up set up and is responsible for the oversight, management and
escalation of climate risks.
Progress made on Climate-related and environmental risk will be
reported on a regular basis to the Risk Management Meeting, Risk
Committee and the Board.
HSBC implements sustainability risk policies as part of its broader
reputational risk framework. We focus our policies on sensitive
sectors which may have a high adverse impact on people or on
the environment and in which HSBC has a significant number of
customers. This includes sectors with potentially high carbon
impacts including power generation, mining, agricultural
commodities and forestry. HSBC is also a signatory to the Equator
Principles which in 2020 introduced provisions aimed at reducing
project-related greenhouse gas emissions during the design,
construction and operation of projects.
Future policy reviews will be informed by Group Climate Ambition
and risk appetite, implemented locally, taking into account EU
regulatory requirements.
Climate Risk Disclosures
In November 2020, the European Central Bank published its Guide
on climate-related and environmental risks setting out supervisory
expectations relating to risk management and disclosures. In
January 2022, the ECB provided feedback to the local Group on
areas for improvement, certain of which have been addressed in
the preceding page, and certain of which will be addressed in
future disclosures.
•Key elements of future disclosures will incorporate:
•Transparency of the risk profile
•Transparency on methodologies, definitions and criteria used
•Strategy
•Governance
•Risk management
•Metrics and targets
•Other environmental risks
Mitigating actions
•We have identified six key sectors where our wholesale credit
customers have the highest climate risk, based on their CO2
emissions. These are oil and gas, building and construction,
chemicals, automotive, power and utilities and metals and
mining.
•We continue to deepen our understanding of the drivers of
climate risk and managing our exposure to climate risk is a
priority.
•Our climate risk programme continues to accelerate the
development of our climate risk management capabilities
across four key pillars – governance and risk appetite, risk
management, stress testing and scenario analysis, and
disclosures.
•We are currently engaged in the 2022 ECB Climate Risk Stress
Test.
•We continue to engage with our customers, proactively on the
management of climate risks as transition risk are assessed and
monitored by the client facing and the credit teams for ten high
transition risk sectors.
Report of the Directors
28
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
How climate risk can impact HSBC
Below, we provide detail on how climate risk impacts to our
customers might manifest across our key climate risks, and the
potential time frames involved using the Task Force on Climate
Related Disclosures four main drivers of transition climate risk –
policy and legal, technology, end-demand (market) and
reputational – and two physical risk drivers – acute and chronic.
Risk management framework
Financial risks
Non-financial risk
Risk type
Wholesale
credit
Retail credit
Strategic risk
(reputational)
Resilience risk
Regulatory
compliance risk
Timescale1
Short–long
term
Medium–long
term
All term
periods
Short–long
term
Short–medium
Transition risk drivers
–  policy and legal
l
l
l
–  technology
l
–  end-demand (market)
l
l
–  reputational
l
l
l
Physical risk drivers
–  acute – increased frequency and severity of weather events
l
l
l
–  chronic – changes in weather patterns
l
l
l
1Short term: less than one year; medium term: period to 2030; long term: period to 2050.
Supporting our stakeholders in response to
Covid-19
The prolonged Covid-19 outbreak continued to have a strain on
the day to day of many across the globe during 2021. As a bank
we have kept true to our North Star which is to keep our
stakeholders safe. We continued to encourage remote working
where possible and use digital tools to ensure business continuity.
We have kept close contact with our people, customers and all
key stakeholders during this time.
We have delivered focused well-being sessions for all our
employees during the year which covered a number of themes
from coping mechanisms and adopting safe and healthy lifestyles
during the pandemic.
We worked closely with our customers to increase the use of
fintech tools and online services. This brought about a more
efficient service and increase in digital capabilities of our
customers. As the pandemic rages on across the globe, we will
continue to remain committed to safeguard the well-being of our
people, customer and partners.
As the pandemic progressed, CMB remained focused on providing
corporate customers with the service and products that they need
to meet the challenges brought about by the travel restrictions,
business closures and supply chain disruptions, and to thrive in
the post-pandemic environment. Technology adopted last year as
well as further enhancements and investments carried out during
the year ensured seamless service and timely interactions. There
has been additional take-up of loans under the Malta Development
Bank Covid-19 Guarantee Scheme, designed to support
businesses experiencing cash flow challenges due to the
pandemic. As we did in 2020, we also provided our customers
with industry knowledge and perspectives, drawing on HSBC
Group capabilities and subject matter experts. We did this through
webinars organised on a wide variety of subjects, some of which
were held jointly with local business organisations as well as by
sharing thought leadership content.
Continued support in 2021 given impacts of the pandemic.
Customer support measures continued to be provided to
borrowers.  However, conditions vastly improved on 2020 with
significant majority of customers resuming payments.
In addition to the introduction of Health & Safety measures in our
branches and offices we continued to increase awareness and
promote usage of self-service machines, cards and internet
banking through public campaigns. We have continued to grow
adoption of digital channels and launched a Two Factor
Authentication journey within the Mobile Banking app, increasing
customer protection against online payment fraud and meeting
PSD2 requirements.
For the first time in our history, we adopted a hybrid working
environment for most of our people working at Head Office, whilst
our front liners continued supporting our customers on a face to
face basis.
More broadly WPB launched three new needs-based Wealth
Calculators on our public website and introduced a remote journey
as a new channel to meet and service our Wealth customers in
addition to the traditional face-to-face interaction.
The insurance business remained focused in providing customers
with improved access and Q4 saw the launch of an online
protection quote tool enabling customers to seek an online quote
for death cover through the public website.
We proactively monitor for regulatory developments to ensure
they are interpreted and implemented effectively and in a timely
way. We engage with regulators, policymakers and standard
setters, as appropriate. We have continued to uphold our
standards, track and document any changes and maintain our
transparency with regulators.
Branches and offices
A list of branches and offices is found on page 148.
Additional regulatory disclosures
Banking Rule 07 (Publication of Annual Report and Audited
Financial Statements of Credit Institutions Authorised under the
Banking Act 1994) partly repealed by certain provisions in the
Capital Requirements Regulation (EU) No 575/2013 on prudential
requirements for credit institutions and investment firms (‘CRR’) is
related to market discipline and aims to make credit institutions
more transparent by requiring them to publish specific disclosures
on the credit institution’s risk and capital management under the
Basel III framework. However the local group is a large subsidiary
of HSBC Holdings plc and is therefore exempt, in terms of Article
24 of the revised BR 07 and Article 13 of the CRR, from certain risk
disclosure requirements under Pillar 3, on the basis that equivalent
disclosures are performed at the consolidated level which is at the
HSBC Holdings plc level. HSBC Holdings plc publishes full Pillar 3
disclosures as a separate document on the HSBC Group Investor
Relations website.
Shareholder register information pursuant to
Capital Markets Rule 5.64
The bank’s authorised share capital is €141,000,000. The issued
and fully paid up capital is €108,091,830 divided into 360,306,099
ordinary shares of a nominal value of 30 cents each. The issued
share capital consists of one class of ordinary shares with equal
voting rights attached and are freely transferable.
The largest single shareholder of the bank, provided it holds at
least thirty three per cent (33%) of the ordinary issued share
capital of the bank, shall be entitled to appoint the Chairman from
amongst the Directors appointed or elected to the Board.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
29
Every shareholder owning eleven per cent (11%) of the ordinary
issued share capital, shall be entitled to appoint one Director for
each and every eleven per cent (11%) of the ordinary issued share
capital of the bank owned by such shareholder. Any fractional
shareholding not so utilised in the appointment of Director(s) shall
be entitled to participate in the voting for the election of further
Directors.
There is a Restricted Share Awards scheme in existence whereby
employees can be awarded shares in HSBC Holdings plc. Share
awards will be released to the individual staggered over three
years, provided the participant remains continuously employed
within the Group. Vesting of these awards are generally not
subject to performance conditions. During the vesting period the
employee has no voting rights whatsoever.
The rules governing the appointment of Board Members are
contained in Articles 77 to 80 of the bank’s Articles of Association.
An extraordinary resolution approved by the shareholders in the
general meeting is required to amend the Articles of Association.
The powers of the Directors are outlined in Articles 73, 74 and 85
of the bank’s Articles of Association. In terms of Article 12 of the
said Articles of Association, the bank may, subject to the
provisions of the Companies Act, 1995, acquire or hold any of its
shares.
The Collective Agreement regulates redundancies, early
retirement, resignation or termination of employment of
employees. There are no contracts between the bank and the
Directors on the bank’s Board providing for compensation on
resignation or termination of directorship.
It is hereby declared that the requirements pursuant to Capital
Markets Rules 5.64.7 and 5.64.10 that deal with agreements
pertaining to changes in control of the bank did not apply to the
bank as at 31 December 2021.
Shareholder register information pursuant to
Banking rule 7 – Appendix 1
Directors’ interest in the share capital of the bank
At 31 Dec 2021
No. of shares
John Bonello
40,742
Michel Cordina
4,198
None of the shares in the bank’s subsidiary companies were held
by Directors.
There were no changes to Directors’ interest from 31 December
2021 to 31 January 2022.
Shareholders holding five per cent (5%) or more of the equity
capital at 31 January 2022: HSBC Europe B.V. 70.03%
Number of shareholders at 31 January 2022:
One class of shares 9,198 shareholders (All shares have equal
voting rights).
Number of shareholders analysed by range
At 31 Jan 2022
Total
shareholders
Shares
Range of shareholding
1 – 500
1,489
445,153
501 – 1,000
1,153
869,892
1,001 – 5,000
3,852
9,840,069
5,001 and over
2,704
349,150,985
Total shareholding
9,198
360,306,099
Standard licence conditions applicable under
the Investment Services Act, 1994
In accordance with the Malta Financial Services Authority
(‘MFSA’) Investment Services Rules (‘ISRs’) Rule for Investment
Services Providers (Part BI R4-5.3.5) and the Standard Licence
Conditions (‘SLCs’) of the Investment Services Rules applicable to
Investment Services Licence Holders which qualify as Custodians
(Part BIV SLC 2.30), and regulated by the MFSA, the Directors
confirm that there were no breaches of the MFSA Investment
Services Rules, the Standard Licence Conditions, or other
regulatory requirements which occurred during the reporting
period, and which were subject to an administrative penalty or
other regulatory sanction.
Board of Directors
The Directors who served during the year and up till the date of
this report are as follows:
John Bonello
Simon Vaughan Johnson
Andrew Muscat
Sue Vella
Yiannos Michaelides
Michel Cordina
Ingrid Azzopardi
Manfred Galdes
Matthew Colebrook
 
Disclosures in Terms of Article 435 of Capital
Requirements Regulations
Disclosure on Governance Arrangements
Number of directorships held by the Members of the Board of
Directors
John Bonello
1 Non-Executive chairmanship
Simon Vaughan Johnson
1 Executive Directorship and 2 non-executive
directorships all within the same Group
Michel Cordina
1 Executive Directorship
Matthew Colebrook
1 Non-Executive Directorship
Andrew Muscat
4 Non-Executive Directorships
Ingrid Azzopardi
1 Non-Executive Directorship
Sue Vella
1 Non-Executive Directorship
Yiannos Michaelides
1 Executive Directorship and 1 Non-Executive
Directorship
Manfred Galdes
2 Executive Directorships in same Group and 2
Non-Executive Directorships.
None of the Directors required approval from the Competent
Authority with regard to the number of directorships held.
Board Succession Policy
In terms of the Board’s Succession Policy approved in February
2020, the Board acknowledges that good succession planning
contributes to the long-term success of the bank. The objective of
this policy is to ensure continuity of decision-making and prevent,
where possible, too many Board Members having to be replaced
simultaneously. The policy aims to have the bank prepared for any
planned or unplanned vacancies. Moreover, it ensures that future
Directors will be individually and collectively fit and proper to form
part of the bank’s Board of Directors, committing to its vision,
values, objectives and to meet their statutory and regulatory
obligations.
Without prejudice to the Shareholders’ right to appoint and
replace members of the Board, in line with the local Code of
Principles of Good Corporate Governance, the Board has
delegated to the bank’s Remuneration and Nomination Committee
(RemNom) with the power to lead the process for board
appointments and make recommendations to the Board. RemNom
has been empowered by the Company’s Articles of Association to
conduct a fit and proper assessment when seeking qualified
candidates for board directorships, in line with local regulatory
Report of the Directors
30
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
guidance on the topic. In the suitability assessment, consideration
is to be given to the Board’s Diversity Policy and to the Board’s
Conflicts of Interest Policy.
Knowledge, Skills and Expertise of the Board Members
John Bonello
Accountancy
Simon Vaughan Johnson
Banking and Finance
Michel Cordina
Banking and Finance
Matthew Colebrook
Banking and Finance
Andrew Muscat
Financial and Corporate Legislation
Ingrid Azzopardi
Accountancy
Sue Vella
Management and Human Resources
Yiannos Michaelides
Information Technology
Manfred Galdes
Financial and Anti-Money Laundering
Legislation
Executive Committee and Head of Internal
Audit
As at 31 December 2021, the bank’s Executive Committee of the
local group was composed of the following:
Simon Vaughan Johnson
Chief Executive Officer
Elizabeth Hardy
Chief Operating Officer
Charlotte Cilia
Chief Financial Officer
Crawford Prentice
Head of Wealth and Personal Banking
Michel Cordina
Head of Business Development
Jesmond Apap
Head of Global Markets
Caroline Buhagiar Klass
Head of Human Resources and Corporate
Sustainability
Joyce Grech
Head of Commercial Banking
Joseph Sammut
General Counsel
Gerard Walsh
Chief Risk Officer
Mandy Falzon
Chief Compliance Officer
Carine Arpa
Head of Communications
George Brancaleone
Company Secretary
Morgan Carabott
Head of Internal Audit
Auditors
PricewaterhouseCoopers have expressed their willingness to
continue in office as auditors of the bank and the local group and
a resolution proposing their reappointment will be put at the
forthcoming Annual General Meeting.
Going concern
As required by Capital Markets Rule 5.62, upon due consideration
of the bank’s profitability and statement of financial position,
capital adequacy and solvency, the Directors confirm the bank’s
ability to continue operating as a going concern for the
foreseeable future.
Statement by the Directors Pursuant to Capital
Markets Rule 5.70.1
Pursuant to Capital Markets Rule 5.70.1 there were no material
contracts to which the bank, or anyone of its subsidiary
undertakings, was party to and in which anyone of the Directors
was directly or indirectly interested.
Statement by the Directors Pursuant to Capital
Markets Rule 5.68
We, the undersigned, declare that to the best of our knowledge,
the financial statements prepared in accordance with the
requirements of International Financial Reporting Standards as
adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the bank and its
subsidiaries and that this report includes a fair review of the
development and performance of the business and the position of
the bank and its subsidiaries, included in the consolidation taken
as a whole, together with a description of the principal risks and
uncertainties that they face.
Signed on behalf of the bank's Board of Directors on 22 February 2022
by John Bonello (Chairman) and Simon Vaughan-Johnson (Chief
Executive Officer) as per the Directors' Declaration on ESEF Annual
Financial Report submitted in conjunction with the Annual Report and
Accounts 2021.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
31
Directors’ Responsibilities Statement
The Companies Act, 1995 requires the Directors of HSBC Bank Malta p.l.c. to prepare financial statements which give a true and fair
view of the financial position of the local group and the bank as at the end of each period and of the profit or loss for that period. In
preparing the financial statements, the Directors are responsible for:
•ensuring that the financial statements have been drawn up in accordance with the requirements of International Financial Reporting
Standards as adopted by the EU;
•ensuring that the financial statements have been properly prepared in accordance with the provisions of the Companies Act, 1995
and the Banking Act, 1994;
•selecting and applying consistently suitable accounting policies;
•making accounting judgements and estimates that are reasonable; and
•ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the local
group and the bank will continue in business as a going concern.
The Directors are also responsible for safeguarding the assets of the local group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Through oversight of management, the Directors are responsible for ensuring that the bank and the local group establish and maintain
internal control to provide reasonable assurance with regard to reliability of financial reporting, effectiveness and efficiency of
operations, compliance with applicable laws and regulations, and as far as possible, the orderly and efficient conduct of the local group’s
business. This responsibility includes establishing and maintaining controls pertaining to the preparation of financial statements and for
managing risks that may give rise to material misstatements in those financial statements, whether due to fraud or error.
The financial statements of HSBC Bank Malta p.l.c. for the year ended 31 December 2021 are included in the Annual Report 2021, which
is being published in printed form and made available on the bank’s website. The Directors are responsible for the maintenance and
integrity of the Annual Report on the website in view of their responsibility for the controls over, and the security of, the website. Access
to information published on the bank’s website is available in other countries and jurisdictions, where legislation governing the
preparation and dissemination of financial statements may differ from requirements or practice in Malta.
Signed on behalf of the bank's Board of Directors on 22 February 2022 by John Bonello (Chairman) and Simon Vaughan Johnson (Chief
Executive Officer) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and
Accounts 2021.
Directors’ Responsibilities Statement
32
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Statement of compliance with
the Code of Principles of Good
Corporate Governance
The Board of Directors (the ‘Board’) of HSBC Bank Malta p.l.c. (the
‘bank’) acknowledges that effective corporate governance is
critical to the proper functioning of the banking sector and the
economy as a whole. Hence, it is committed to the HSBC global
values of valuing difference, succeeding together, taking
responsibility and getting it done. The Board ensures that each
employee, through ongoing training, is aware of the obligation to
ensure that his or her conduct consistently matches the bank’s
values.
The Board is proud of the fact that it has a solid corporate
governance framework that is built around the principles of
control and accountability. This culture stems from a philosophy
that puts the protection of investors and the interest of customers
at the forefront. The Board further believes that good corporate
governance has a positive impact on the bank’s performance.
Corporate governance is subject to regulation by the Malta
Financial Services Authority. As a company whose equity
securities are listed on a regulated market, the bank endeavours
to adopt the Code of Principles of Good Corporate Governance
(the ‘Code’ or ‘Principles’) embodied in Appendix 5.1 of the
Capital Markets Rules. In terms of Capital Markets Rule 5.94 and
the Code’s Preamble, the bank is obliged to disclose compliance
or non-compliance with the provisions of the said Code. The bank
strives to maintain the highest standards of disclosure in reporting
the effective measures adopted to ensure compliance with the
Principles, and to explain the instances of non-compliance.
Compliance with the Code
Principle 1: The Board
The Board plays a key role in effective governance as it lies at the
top-end of a system of control that is focused on overseeing and
challenging management and control functions in order to ensure
effective and prudent management of the bank.
The bank is headed by an effective Board that leads the bank,
directs the business and promotes the company’s values and
standards. It reinforces the tone from the top by setting corporate
values. It creates expectations that all business should be
conducted in a legal and ethical manner.
The Board is composed of members who are honest, competent
and solvent, and have been considered to be fit and proper to
direct the business of the bank. Directors, individually and
collectively, are of the appropriate calibre, having the necessary
skills and experience to provide leadership, integrity and
judgement in directing the bank. The courageous integrity,
honesty and diligence of the Directors guarantee that the bank
adheres to HSBC Group’s (the ‘Group’) highly ethical business
values and this is reflected in the bank’s decision and policy-
making process. Through their knowledgeable contribution,
Directors enhance shareholder value, protect the bank’s assets
and safeguard the interest of third parties.
All Directors ensure that they are informed about the overall
activity, financial and risk situation of the bank, taking into
account the economic environment. They are also cognisant of
decisions that have a major impact on the bank’s business.
Board Members are accountable for their performance and that of
their delegates to shareholders and other relevant stakeholders.
Besides having a broad knowledge of the bank’s business, they
are also conversant with the statutory and regulatory
requirements regulating this business. Directors regularly attend
Board meetings and allocate sufficient time to perform their
duties.
The Board determines and oversees the implementation of the
bank’s strategic objectives and risk strategy and internal
governance. It regularly reviews management performance. and
ensures that the bank has the appropriate financial and human
resources to meet its objectives.
Moreover, it exercises prudent and effective controls, which
enable risk to be appropriately assessed and managed in order to
achieve the short- and long-term sustainability of the business. As
part of a larger international Group, the Board assesses the
compatibility of Group policy with local legal and regulatory
requirements, and where appropriate, adapts those policies.
The Board ensures the integrity of the bank’s accounting and
financial reporting systems, including financial and operational
controls and compliance with the law and relevant standards.
During the year, the Board delegated specific responsibilities to a
number of Committees, namely the Audit Committee, the Risk
Committee, the Remuneration and Nomination Committee and
the Executive Committee. Further detail in relation to the
Committees and their responsibilities can be found under Principle
4 of this Statement.
The process of appointment of Directors is conducted in terms of
the company’s Memorandum and Articles of Association. It states
that the Board is to consist of not more than nine Directors who
are appointed/elected by the shareholders. Every shareholder
owning 11 per cent of the Ordinary Share Capital is entitled to
appoint one Director for each 11 per cent shareholding. The
majority shareholder therefore has the right to appoint six
Directors. Furthermore, any excess fractional shareholding not so
utilised may be used to participate in the voting for the election of
further Directors. Shareholders who own less than 11 per cent of
the ordinary share capital participate in the election of the
remaining three Directors. The largest single shareholder (subject
to a minimum 33 per cent holding of the ordinary issued share
capital of the bank) is entitled to appoint a Chairman from among
the Directors appointed or elected to the Board.
Principle 2: Chairman and Chief Executive Officer
The positions of the Chairman and of the Chief Executive Officer
(‘CEO’) are occupied by different individuals. There is a clear
division of responsibilities between the running of the Board and
the Chief Executive Officer’s responsibility in managing the bank’s
business. This separation of roles of the Chairman and Chief
Executive Officer avoids concentration of authority and power in
one individual. It differentiates the function of leadership of the
Board from that of running the business.
The Chairman and the CEO acknowledge that it is imperative to
have a constructive relationship with each other and that a certain
level of independence is maintained.
The letter of appointment of the Chairman approved by the Board
and agreed to by the Chairman clearly establishes the
responsibilities of the Chairman, including an assessment of the
time commitment expected.
The Chairman, who was independent on appointment and still
meets the independence criteria, leads the Board. He sets the
meeting agenda and ensures that decisions of the Board are taken
on a sound and well-informed basis. He ensures that the Directors
receive precise, timely and objective information and at the same
time ensures effective communication with shareholders. During
Board meetings, he encourages active engagement by all Board
Members and ensures that Directors constructively challenge
senior management. The Chairman also facilitates the effective
contribution of Non-Executive Directors thus ensuring
constructive relations between Executive and Non-Executive
Directors.
The Chairman encourages and promotes open and critical
discussion, ensuring that any dissenting views are expressed and
discussed within the decision-making process. Moreover, the
Chairman contributes to the efficient flow of information within
the Board, as well as between the Board and its Committees. The
Chairman is responsible for an effective overall functioning of the
Board.
The Chief Executive Officer advises the Board, formulates policies
and makes recommendations to the Board. He develops, drives
and delivers performance within strategic goals, commercial
Statement of compliance with the Code of Principles of Good Corporate Governance
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
33
objectives and business plans agreed by the Board. He is
responsible for executing strategy and implementing plans. He
effectively leads the senior management in the day-to-day running
of the bank, ensures compliance with appropriate policies and
procedures and maintains an effective framework of internal
controls over risk in relation to the business. He makes decisions
on all matters affecting the operations, performance and strategy
of the business, except for those matters reserved for the Board or
specifically delegated by the Board to its Committees. He assists
in the selection and evaluation of prospective Board Members and
senior management roles. He interfaces between the Board and
employees and between the bank and other stakeholders.
Principle 3: Composition of the Board
Experience has shown that the size of the Board is appropriate to
facilitate effective oversight over the bank’s operations. Each of
the Directors is skilful, competent, knowledgeable and
experienced to fulfil his/her role diligently. The Directors who held
office during the year, possess the requisite ability to assess
business risk, to identify key performance indicators and
participate in critical debate in the decision-making process.
Ethnicity, age, culture, and gender diversity, underpinned by
meritocracy, are areas of strategic focus for the employee base.
The same principle is applied to the composition of the Board in
accordance with the Board Diversity Policy. This policy
established a target of 33% of Directors to be female by 2022
(presently there are two female Directors on the Board), together
with an aspiration to target gender parity on the Board over the
long term, while abiding by the principle of meritocracy. Indeed,
the bank remains committed to meritocracy in the Boardroom,
which requires a diverse and inclusive culture where Directors
believe that their views are heard, their concerns are attended to
and they serve in an environment where bias, discrimination and
harassment at any level are not tolerated. The benefits of diversity,
including that in educational and professional backgrounds,
continue to influence the Remuneration and Nomination
Committee’s Board succession planning and Board candidates’
selection process. This has resulted in a diverse Board
composition which meets the diversity criteria in its widest aspect
of ethnicity, age, culture, gender and educational and professional
backgrounds. The right mix of Board Members ensures diverse
perspectives, experience and knowledge.
During 2021, the Board was composed of a Non-Executive
Chairman, two Executive Directors and six Non-Executive
Directors. Five of the Non-Executive Directors are deemed to be
independent. Whereas the Executive Directors are involved in the
day-to-day running of the business, ensuring adherence to the
four-eye principle, the Non-Executive Directors bring an external
perspective to the Board when they constructively challenge and
help develop proposals on strategy, scrutinise the performance of
management, and monitor the risk profile and the reporting of
performance.
They are proactive in ensuring that financial controls and risk
management systems are well established and in satisfying
themselves with the integrity of financial information.
The appointment of Directors requires the ‘non-objection’ of the
European Central Bank. This non-objection has been granted to all
of the bank’s Directors.
The letter of appointment issued to Non-Executive Directors
stipulates the minimum time commitment expected to be
dedicated to the bank. Non-Executive Directors undertake to have
sufficient time to meet what is expected of them. Any other
significant commitments are disclosed to the Board before their
appointment and subsequent changes are notified as they arise.
In accordance with the Code Provision 3.2, the independent Non-
Executive Directors as at 31 December 2021 were the following:
Ingrid Azzopardi, Yiannos Michaelides, Andrew Muscat, Sue Vella
and Manfred Galdes.
In determining the independence or otherwise of its Directors, the
Board has considered, inter alia, the principles relating to
independence embodied in the Code, the local group’s own
practice as well as general principles of good practice.
The Board has determined that the fact that Andrew Muscat is a
partner in a Law firm that provides legal services to the bank does
not influence this Director’s objective and balanced judgement or
in any way reduce his ability to take decisions independently.
On the other hand, in accordance with Code Provision 3.2.1, the
Board had decided that the employment of Matthew Colebrook
with the Group rendered him non-independent from the bank. This
did not however, in any manner, detract from the non-
independent Director’s ability to maintain independence of free
judgement and character at all times. He was deemed able to
make his own sound, objective judgement and independent
decisions when performing his functions and responsibilities.
In terms of Principle 3.4, each Non-Executive Director has
confirmed in writing to the Board that he/she undertook:
•to maintain in all circumstances his/her independence of
analysis, decision and action;
•not to seek or accept any unreasonable advantages that could
be considered as compromising his/her independence; and
•to clearly express his/her opposition in the event that he/she
finds that a decision of the Board may harm the bank.
Principle 4: The Responsibilities of the Board
The Board sets the bank’s strategy, policies and business plans
and strategy is discussed on a regular basis at Board meetings.
The Board of Directors monitors the implementation by
management of strategy and policy within the parameters of all
relevant laws, regulations and codes of best practice. The Board
ensures that a balance is maintained between enterprise and
control. The Board recognises and supports innovation within the
management of the bank and it remains accountable to the
shareholders for its performance and also ensures effective
communication with the different groups of stakeholders.
The Board actively oversees the affairs of the bank and stays
attuned to material changes in the bank’s business and the
external environment, as well as acts in a timely manner to protect
the long-term interests of the bank. It plays a leading role in
establishing the bank’s corporate culture and values. The Board,
together with senior management and the Chief Risk Officer
establishes the bank’s risk appetite, taking into account the
commercial and regulatory landscape and the bank’s long-term
interests, risk exposure and ability to manage risk effectively. It
also oversees the bank’s adherence to the Risk Appetite
Statement, risk policy and risk limits.
The Board is also responsible for approving the approach and
overseeing the implementation of key policies pertaining to the
bank’s capital adequacy assessment process, capital and liquidity
plans, compliance policies and obligations and the internal control
system. The Board, through one of its Directors who reports to the
Board, oversees the integrity, independence and effectiveness of
the bank’s policies and procedures for Whistleblowing.
Whistleblowing also falls under the remit of the Audit Committee.
The regular evaluation of management’s implementation of
corporate strategy and financial obligations is based on the use of
key performance indicators enabling the bank to adopt expedient
corrective measures. These key business risk and performance
indicators are benchmarked against industry norms so as to
ensure that the bank’s performance is effectively evaluated.
The Board ensures that the bank has appropriate policies and
procedures in place that guarantee that the bank and its
employees adhere to the highest standards of corporate conduct
and comply with the applicable laws, regulations, business and
ethical standards.
The Board has approved a Management Body and Key Function
Holders Suitability Assessment Policy (‘Board Suitability Policy’)
and has also adopted a succession policy and developed a
succession plan for the future composition of the Board.
Statement of compliance with the Code of Principles of Good Corporate Governance
34
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
An effective reporting system that enables the Directors to have
relevant and timely information, such that the Board can
discharge its duties, exercise objective judgement and take
pertinent decisions, is implemented through:
•presentations delivered by senior management during Board
meetings;
•updates provided by the CEO and senior management during
intervals between Board/Committees’ meetings; and
•accessibility to a common electronic platform hosting bank
information, including Board/Committees’ documentation and
minutes of meetings.
The Board ensures that its level of power is known by all Directors
and the senior management of the bank. Any delegation of
responsibility and function is clearly documented.
The Board delegates specific responsibilities to Committees,
which operate under their respective formal Terms of Reference
which are embodied in the Corporate Governance Framework
which the Board reviews and approves on an annual basis.
Audit Committee
The Terms of Reference of this Committee are compliant with the
Capital Markets Rules and Banking Rule 12, the European Banking
Authority Guidelines on Internal Governance and are modelled on
the recommendations in the Cadbury Report and the UK Walker
Review.
The Committee protects the interests of the bank’s shareholders
and assists Directors in conducting their role effectively so that
the bank’s decision-making capability and the accuracy of its
reporting and financial results are maintained at the highest level
at all times. It ensures that the bank maintains a robust finance
function responsible for accounting and financial data. This
Committee has non-executive responsibility for oversight of, and
advice to, the Board on matters relating to financial reporting.
Hence, it monitors the integrity of the bank’s financial statements,
and any formal announcements relating to the bank’s financial
performance or supplementary, regulatory information, reviewing
significant financial reporting judgements contained in them.
This Committee reviews, inter alia, the bank’s annual operating
plan and the capital plan. Moreover, it reviews and considers
changes to significant accounting policies and practices as
applicable.
An important function of the Audit Committee is to monitor and
review the effectiveness of the Internal Audit Function, consider
major findings of internal investigations and management’s
response, and ensure that the Internal Audit Function is
adequately resourced and is free from constraint by management.
This Committee approves the internal audit work plan, which will
include assessment of controls relating to financial reporting,
conduct, financial crime and other risks as appropriate.
The Audit Committee also has the responsibility to review and
monitor the external auditor’s independence, objectivity and the
effectiveness of the audit process. In this regard, the Committee
also has to satisfy itself that there is the appropriate co-ordination
between the internal and external auditors.
This Committee scrutinises and approves related party
transactions. It considers the materiality and the nature of the
related party transactions carried out by the bank to ensure that
the arms’ length principle is adhered to at all times and that
business resources are not misapplied.
The Committee oversees the implementation of the bank’s
Whistleblower Policy to ensure confidentiality, protection and fair
treatment of whistleblowers. It reviews the operation and
effectiveness of the arrangements by which staff, in confidence,
can raise issues.
The Committee met six times during 2021 and was composed of
Ingrid Azzopardi as Chairperson, and Andrew Muscat and Sue
Vella as Members.
Attendance at Audit Committee meetings
Attended
Ingrid Azzopardi
6 out of 6
Andrew Muscat
6 out of 6
Sue Vella
6 out of 6
During the year, regular informal meetings were held between the
Chairman of this Committee and Members of Senior Management
especially the Chief Executive Officer, the Head of Internal Audit
and the Chief Financial Officer.
Senior Managers of the bank are invited to attend any of the Audit
Committee’s meetings as directed by the Committee.
The Chief Executive Officer, the Chief Risk Officer, the Chief
Financial Officer and representatives of the external auditors
attend all the meetings. In line with Capital Markets Rule 5.131,
the Head of Internal Audit is also present for the meetings and has
a right of direct access to the Chairman of the Committee at all
times.
Ingrid Azzopardi was appointed by the Board as the Director who
is independent and competent in accounting and/or auditing in
terms of Capital Markets Rule 5.117 on the basis that she is a
Certified Public Accountant and Auditor and a Fellow of the Malta
Institute of Accountants, a Fellow of the UK Institute of Directors,
and also a Member of the Institute of Internal Auditors.
In terms of Capital Markets Rule 5.127.7, the Audit Committee is
responsible for developing and implementing policy on the
engagement of the external auditor to supply non-audit services.
The provision of non-audit services to EU Public Interest Entities
(‘PIEs’) and to parent and controlled undertakings in the EU are
regulated in terms of EU rules.
In addition, since HSBC Holdings plc is a Securities Exchange
Commission (‘SEC’) registered company, non-audit services
provided by the external auditor are also regulated in terms of the
SEC rules.
Risk Committee
This Committee is responsible for advising the Board on high-level
risk-related matters, including both financial and non-financial
risks, impacting the bank and its subsidiaries. In providing such
oversight and advice to the Board, the Committee oversees:
current and forward-looking risk exposures, the bank’s risk
appetite profile and future risk strategy. The Committee has to
satisfy itself that the risk appetite is aligned to the bank’s strategy
and business plans and takes into account the macroeconomic
and financial environment. It is the Committee’s responsibility to
advise the Board on overall current and future risk appetite, risk
tolerance-related matters and strategy and assist the Board in
overseeing implementation of that strategy by senior
management.
The Committee reviews and recommends as applicable the bank’s
Internal Capital Adequacy Assessment Process and the Internal
Liquidity Adequacy Assessment Process. The Committee has to
satisfy itself that the stress testing framework, governance and
related internal controls are robust.
The Committee reviews the effectiveness of the bank’s conduct
framework designed to deliver fair outcomes for customers,
preserve the orderly and transparent operation of financial
markets and protect the bank against adverse outcomes to the
bank’s financial and non-financial condition and prospects.
The Committee also considers the effectiveness of management’s
policies for addressing risks relating to the bank’s cyber security,
information security and operational resilience programmes.
Moreover, the Committee oversees matters relating to Financial
Crime Risk and controls relating to anti-bribery and corruption.
Furthermore, the Committee approves the annual plan for the
Compliance Function and receives regular reports on progress
against the plan and other matters relating to regulatory
compliance risk and the bank’s relationship with Regulators.
The Committee is empowered to review whether prices of
liabilities and assets offered to clients take full account of the
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
35
bank’s business model and risk strategy. Moreover, it reviews
how effectively management is embedding and maintaining an
effective risk management culture and strong internal control
environment designed to foster compliance with the bank’s
regulatory compliance requirements.
The Committee met ten times during 2021 and was composed of
Manfred Galdes as Chairman, and Ingrid Azzopardi and Yiannos
Michaelides as Members.
Attendance at Risk Committee meetings
Attended
Manfred Galdes
10 out of 10
Ingrid Azzopardi
10 out of 10
Yiannos Michaelides
6 out of 10
Senior managers of the bank and the external auditors are invited
to attend any of the meetings as directed by the Committee.
The Chief Executive Officer, the Chief Risk Officer, the Chief
Financial Officer, the Chief Compliance Officer and the Head of
Internal Audit are standing attendees at the meetings.
Remuneration and Nomination Committee (‘RemNom’
Committee)
The remuneration aspect of this Committee, its composition and
information relating to its meetings during 2021 are dealt with
under the Remuneration Report, which also includes, inter alia,
the Remuneration Statement in terms of Code Provision 8.A.4 and
information required in terms of Appendix 12.1 of the Capital
Markets Rules.
In its nomination function, the Committee is primarily tasked with
identifying and nominating new Board and Board Committees’
candidates for the approval of the Board. It periodically assesses
the structure, size, composition and performance of the Board and
makes recommendations to the Board with regard to any
changes. It is also tasked with considering issues relating to
succession planning and reviewing the Suitability Policy for
selection and appointment of senior management. This
Committee is also responsible to at least annually assess the
skills, knowledge and experience of individual Directors and of the
Board collectively and report on this to the Board.
The Committee continued to perform its role regarding ‘fit and
proper’ assessments of present and prospective Board Members,
with power of rejection of any proposed Board candidate on the
basis of unsuitability. In order to enable the Committee to carry
out its assessment of the suitability of each individual Director and
of the collective suitability of the Board, in terms of the bank’s
Suitability Policy, Directors have to complete two self-assessment
questionnaires. The following criteria are considered by the
Committee for the individual assessment: knowledge, skill and
experience, reputation, honesty and integrity, conflicts of interest
and independence, time commitment and diversity. For the
collective assessment, the Committee considers the business
model requirements, governance, risk management, compliance,
audit, management and decision-making, and experience
overview. The results of these assessments are then submitted to
the Board and to the Regulator to serve as an integral part of the
Regulator’s due diligence exercise.
Letters of appointment issued to Non-Executive Directors set out
the expected time commitment and by their acceptance thereof
the Directors undertake that they will have sufficient time to
discharge their duties as Directors.
Executive Committee (‘ExCo’)
This Committee is accountable to the Board and its purpose is to
support the bank’s Chief Executive Officer in the performance of
his duties and exercise of his powers, authorities and discretions
in relation to the management and day-to-day running of the bank
and its subsidiaries and to support him in the discharge of his/her
responsibilities to the Board. This Committee is designed to
strengthen decision making by ensuring collective input to
decisions.
In terms of its Terms of Reference, this Committee is chaired by
the Chief Executive Officer and its membership is composed of: 
the Head of Business Development, the Head of Wealth and
Personal Banking, the Head of Commercial Banking, the Head of
Global Markets, the Chief Financial Officer, the Chief Operating
Officer, the Chief Risk Officer, the General Counsel, the Chief
Compliance Officer, the Head of Human Resources, the Head of
Communications and the Company Secretary. As the Head of
Internal Audit should be seen as independent from management,
the holder of said role is not a member of the Committee but is a
standing attendee.
Meetings are held with such frequency and at such times as the
Chair may determine. However, it is expected that the Committee
meets at least ten times per annum.
Decision-making authority in relation to all matters considered by
the Committee remains with the Chief Executive Officer of the
bank pursuant to the authority delegated by the Board.
Whilst oversight remains the responsibility of ExCo, the
Committee may delegate management of any matter within the
scope of its authority to another Committee or individual. It has in
fact delegated authority to the following Committees:
The Risk Management Meeting (‘RMM’)
The RMM met ten times during the year. It is chaired by the Chief
Risk Officer, with the Chief Executive Officer, or any member
appointed by the Chief Risk Officer as alternate chairman, in his/
her absence. The objective of the RMM is to exercise oversight of
the risk/reward framework for the bank and its subsidiaries.
This governance forum is responsible for all risks in all businesses,
functions and subsidiaries under the ownership of the bank,
including inter alia Credit Risk, Market Risk, Operational Risk,
Concentration Risk, Legal and Regulatory Risk, Resilience Risk,
Security and Fraud Risk and Reputational Risk. The RMM is also
responsible for the setting and monitoring of a Risk Appetite
Framework for ExCo and Board approval, signing off on material
credit risk models, and consideration of top and emerging risks
and scenario/stress test analysis. Individual risk acceptance and
approval is not within the Terms of Reference of the RMM, and
continues to be approved under existing delegated authorities
within the management structure of the bank. The Chief Risk
Officer is also invited to attend Board meetings and meetings of
the Audit and Risk Committees in which representations are made
about the overall risk profile associated with the business
including a comprehensive assessment of the bank’s
management of risk.
Financial Crime Risk Management Committee
(‘FCRMC’)
This Committee provides on-going oversight, management and
communication of Financial Crime Compliance (‘FCC’) risks,
issues and changes impacting the business lines. FCC includes
Anti-Money Laundering (‘AML’), Sanctions, Anti-Bribery and
Corruption, Fraud and Tax evasion and Terrorist Financing. The
membership of this Committee, which is chaired by the bank’s
Chief Executive Officer, is composed of most of the bank’s ExCo
team and the Money Laundering Reporting Officer. With effect
from January 2022 this Committee has been merged into the Risk
Management meeting in line with Group policy.
The Asset and Liability Management Committee
(‘ALCO’)
ALCO is responsible for managing the balance sheet with a view
to achieve efficient allocation and utilisation of all resources.
This Committee, which is chaired by the Chief Financial Officer,
reviews the asset and liability risks of the local group and oversees
the prudent management of interest rate risk, liquidity and funding
risk, capital, foreign exchange risk, and solvency risk.
Furthermore, ALCO monitors the external environment and
measures the impact on profitability of factors such as interest
rate volatility, market liquidity, exchange rate volatility, monetary
and fiscal policies and competitor banks’ activity. ALCO monitors
the funding and capital adequacy, making use of forecasts as well
Statement of compliance with the Code of Principles of Good Corporate Governance
36
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
as stress tests to ensure the sustainability of the business model
and ensuring that sufficient resources are available at all times to
meet the demand arising from business activities and regulation.
ALCO is responsible for ensuring that the local group has the
appropriate recovery plan in place to ensure it is prepared to
restore viability in a timely manner under stress. It is also
responsible for resolution planning, detailing the bank’s preferred
resolution strategy and approving the respective plans.
The Chief Executive Officer has primary responsibility for ensuring
efficient development of Asset and Liability Management.
Membership consists of senior executives with responsibility for
the following functions: Commercial Banking, Wealth and
Personal Banking, Markets Treasury, Finance, Asset and Liability
Capital Management, Customer Value Management and
Payments and Cash Management. ALCO, meets once a month
and is chaired by the Chief Financial Officer and deputised by the
Chief Executive Officer.
People Committee
This Committee, which is composed of all the ExCo Members and
which is chaired by the Head of Human Resources & Corporate
Sustainability meets on a quarterly basis. The purpose of this
Committee is to support the bank’s Head of Human Resources &
Corporate Sustainability and Chief Executive Officer in the
exercise of their powers, authorities and discretions in relation to
the management and day-to-day running of the bank’s people
strategies, including people development, and related policies on
Talent Management, Diversity & Inclusion and Culture, as
approved by the HSBC Group People Committee for
implementation in the bank. Amongst its responsibilities, this
Committee performs an annual review of the HSBC Group
Performance and Reward strategy, any material reward or
benefits strategy, and policies changes. It also conducts a bi-
annual Organisation Leadership Review for Entity Critical Roles
and makes recommendations in respect of succession planning. It
reviews and considers Employee Insights arising out of workforce
engagement and insight measures, including results from
Snapshot surveys, and determines the necessary follow-up
actions. It also has responsibility to oversee issues related to the
Employee Pension Plan. 
Principle 5: Board meetings
The Board meets as often and as frequently required to discharge
its duties effectively. During the period under review, the Board
met thirteen times: ten were formal Board meetings and three
were thematic deep dives.
The Chairman ensures that all relevant issues are on the agenda
and supported by all the available information. The agenda strikes
a balance between long-term strategic objectives and short-term
performance issues. Notice of the dates of Board meetings
together with supporting materials are circulated to the Directors
well in advance of the meetings.
During the meetings, Board Members have ample opportunity to
discuss issues set on the board agenda, convey their opinions and
challenge management. The Chairman facilitates presentation of
views pertinent to the relevant issues on the agenda by promoting
a culture of openness and debate. Moreover, Directors are
encouraged to discuss any issue, which they deem appropriate.
Minutes are taken during Board meetings that faithfully record
attendance, discussed matters, tracked actions and decisions.
These minutes are subsequently circulated to all the Directors as
soon as practicable after the meeting. Besides attending formal
Board meetings and Committee meetings of which they form part,
Directors attend, on a frequent and regular basis, meetings where
their presence is required for the proper discharge of their duties.
All the Directors dedicate the necessary time and attention to their
duties as Directors of the bank. The holding of other directorships
in other companies is in line with regulatory provisions.
Directors’ attendance at Board Meetings
Attended
John Bonello
10 out of 10
Simon Vaughan Johnson
10 out of 10
Michel Cordina
10 out of 10
Yiannos Michaelides
9 out of 10
Andrew Muscat
10 out of 10
Manfred Galdes
10 out of 10
Sue Vella
9 out of 10
Ingrid Azzopardi
10 out of 10
Matthew Colebrook
2 out of 3
For the period during which Matthew Colebrook, as designate
Director, was still awaiting regulatory approval, he attended the
following meetings:
Attended
Matthew Colebrook
2 out of 7
Principle 6: Information and professional
development
The Board appoints the Chief Executive Officer of the bank upon
guidance and recommendation by HSBC Group and by the
RemNom Committee. The Board, through the RemNom
Committee, is actively involved in the appointment of other
members of senior management. In this regard, the bank benefits
from the vast wealth of competence, talent and experience found
across the Group.
Full, formal and tailored induction programmes, with particular
emphasis on the systems of risk management and internal
controls, are arranged for newly appointed Directors. The
programmes consist of a series of meetings with senior
executives to enable new Directors to familiarise themselves with
the bank’s strategy, risk appetite, operations and internal controls.
Directors also receive comprehensive guidance on Directors’
duties and liabilities.
A structured Board training and development programme is
organised for the Directors and facilitated by members of ExCo.
The key objective of the programme is to improve the Board’s
awareness in risk, regulation, and compliance developments in
the financial services sector.
Topics covered during these awareness sessions range from the
new regulatory environment to managing risk. Directors also
participate in the Group’s mandatory training, which covers
Financial Crime Compliance topics, regulatory matters, data
privacy and cyber security. Additional training is also held for
individual Directors sitting on Board Committees.
Directors are given opportunities to update and develop their skills
and knowledge, through briefings by senior executives and
externally-run seminars throughout their directorship. Moreover,
Directors have access to independent professional advice, at the
bank’s expense.
Directors also have access to the advice and services of the
Company Secretary who is responsible for adherence to Board
procedures as well as for effective information flows within the
Board, its Committees and with senior management.
The Chairpersons of the Audit and Risk Committees attend on an
annual basis the Group Audit/Risk Committee Chairmen Forum
where they are updated on the latest topical issues from an Audit/
Risk Committees’ perspective.
As part of succession planning and talent management, the Board
and the Chief Executive Officer ensure that the bank implements
appropriate schemes to recruit, retain and motivate high-quality
executive officers. They also encourage members of management
to move to the higher ranks within the organisation and seek to
maintain high morale among the bank’s personnel.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
37
Principle 7: Evaluation of the Board performance
During the year, the Board undertook an evaluation of its own
performance, the Chairman’s performance and that of its
Committees through a Board Effectiveness Questionnaire
modelled on a questionnaire adopted by the Group. This process
was conducted by the RemNom Committee through the support
of the Company Secretary. No material changes in the governance
structures and organisation resulted from this Board evaluation
exercise.
Principle 8: Committees
The Remuneration and Nomination Committee is covered under
Principle 4 and in the Remuneration Report, which also includes
the Remuneration Statement in terms of Code provisions 8.A.4.
Principles 9 and 10: Relations with the
shareholders, with the market and with
institutional shareholders
The Board oversees the process of disclosures to and
communications with external stakeholders. The bank maintains
on-going communication with its shareholders and the market on
its strategy and performance in order to enhance trust and
confidence in the bank. During the period under review, the bank
issued various company announcements and media releases to
explain ongoing corporate developments and material events and
transactions that have taken place and their impact on the
financial position of the bank.
The bank communicates with shareholders in the following ways:
•through the ‘Annual Report and Accounts’ which is made
available on the bank’s website, a printed version of which is
provided to shareholders upon request;
•through the publication of company announcements and
media releases; and
•at the Annual General Meeting and Extraordinary General
Meetings (further detail is provided under the section ‘General
Meetings’).
The bank also holds meetings for stockbrokers, financial
intermediaries and the media to explain the salient features of the
interim and annual financial results.
The bank maintains an open channel of communication with its
shareholders through the Corporate Governance and Secretariat
Function and through the Head of Communications. Meetings
have also been held between the Chief Executive Officer and the
Malta Association of Small Shareholders.
As the Board always endeavours to protect the interests of both
the bank and its shareholders, present and future, the Board takes
into account the fact that shareholders are constantly changing.
This is reflected in the Board’s decisions on long-term
sustainability objectives to safeguard the interests of future
shareholders. The Chairman ensures that the views of
shareholders are communicated to the Board. Moreover, the
Chairpersons of the Audit Committee, of the Risk Committee and
of the RemNom Committee are available to answer questions
during the Annual General Meeting. The conduct of the meeting is
conducive to valid discussion and appropriate decision making.
In terms of the bank’s Articles of Association, the Directors shall,
on the request of members of the company holding not less than
one-tenth of the paid-up share capital, duly proceed to convene an
Extraordinary General Meeting of the bank.
Principle 11: Conflicts of interests
Directors are aware that their primary responsibility is always to
act in the interest of the bank and its shareholders as a whole,
irrespective of who appointed them to the Board. This requires
that they avoid conflicts of interest at all times and that their
personal interests never take precedence over those of the bank
and its shareholders.
In line with HSBC Group best practice, the Board operates a Board
Conflicts of Interest Policy. In terms of this policy, a Director is to
avoid situations in which he or she has or could have, a direct or
indirect interest that conflicts, or possibly may conflict, with the
interest of the bank. Without prejudice to Articles 136A (3)(C) and
143 of the Companies Act, this policy stipulates that a director
must obtain an authorisation from the Board before a situational
conflict arises. Notably, in accordance with this policy, all
directorships and other non-bank appointments should be
authorised by the Board.
By virtue of the bank’s Articles of Association, a Director is bound
not to vote at a Board meeting on any contract or arrangement or
any other proposal in which such Director has a material interest,
either directly or indirectly. Moreover, in terms of the Board’s
Conflicts of Interest Policy, a Director having a continuing material
interest that conflicts with the interests of the bank, should take
effective steps to eliminate the grounds for conflict. In the event
that such steps do not eliminate the grounds for conflict then the
Director should consider resigning.
On joining the Board and regularly thereafter, Directors are
informed and reminded of their obligations on dealing in securities
of the bank within the parameters of law and the Capital Markets
Rules. A proper procedure of reporting advance notices to the
Chairman by a Director who intends to deal in the bank’s shares
has been endorsed by the Board in line with the Principles, the
Capital Markets Rules and the internal Code of Dealing.
Principle 12: Corporate Sustainability
The bank’s Corporate Sustainability (‘CS’) strategy takes into
account the Group-wide strategy. The Board continues to
recognise that the bank has a responsibility towards people and
the planet. The bank has continued to utilise its resources in order
to carry out a series of initiatives and projects designed to provide
value to various sectors for our key stakeholders (i.e. customers,
employees, and the community). In Malta, the bank fulfils the
Group’s CS strategy primarily through its Sustainability function
and the HSBC Malta Foundation (the ‘Foundation’). The HSBC
Malta Foundation seeks to unlock the full potential of individuals
and the community to shape a sustainable future. Drawing from
the HSBC Group resources and a network of partners, the bank
works to tackle critical problems in sustainable finance, climate
ambition and future skills. Locally, the bank remains committed to
making a difference in the areas of child welfare, the environment,
medical research and heritage. The bank has pledged long-term
support to help people access education and training, so as to
acquire the skills needed to succeed today and in the future at the
place of work. There is close collaboration with several
stakeholders including governmental organisations, policymakers,
local businesses, other banks and financial institutions, charities,
non-profit organisations and non-governmental organisations
Through these partnerships, the bank encourages sustainable
business and communities. The bank takes pride in HSBC
colleagues who contribute to the charities and causes they feel
passionate about and staff members are encouraged to take an
active role in initiatives supported by the HSBC Malta Foundation.
Through the Sustainability function, a focus is placed on creating
a sustainable future that leaves a positive impact on society, the
environment and the economy. The HSBC Group has been
working relentlessly on shaping its Corporate Sustainability
agenda for future generations to come. HSBC strives to become a
net zero bank with the aim to reduce its carbon footprint. This will
be achieved by ensuring that the bank’s operations are net zero by
2030 and that the financed emissions are aligned to achieve net
zero by 2050 or sooner. Customers will be supported in this
journey by dedicating up to $1 trillion of financing and investment
globally in the next 10 years. With this ambition in mind, the bank
has been very active locally during 2021 to drive initiatives aligned
with this strategy. The creation of the Climate Business Council,
led by the senior management team of the bank, oversees the
execution of this ambition.
The net zero plan for the bank is divided into two sections: (1)
Carbon Emissions and (2) Responsible Consumption. Within each
of these sections, there are a number of categories, outcomes and
ambitions. Within Carbon Emissions, the plan is split into three
main categories: Supply Chain (74% of Carbon Emissions), Energy
(16% of Carbon Emissions) and Travel (10% of Carbon Emissions).
Statement of compliance with the Code of Principles of Good Corporate Governance
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Within Responsible Consumption, the plan is split into five
categories: Waste, Green Buildings, Paper, Electronics and
Sustainable Diets.
Non-compliance with the Code
Principle 9 (Code Provision 9.3 and Code
Provision 9.4)
This Code Provision recommends the bank to have in place a
mechanism to resolve conflicts between minority shareholders
and controlling shareholders. Although the bank does not have
such a mechanism in place, there is ongoing open dialogue
between the bank’s senior management and the Non-Executive
Directors to ensure that no such conflicts arise.
In terms of Code Provision 9.4, minority shareholders should be
allowed to formally present an issue to the Board of Directors. The
bank discloses that it does not have a policy in terms of this code
provision. However, the bank maintains an open dialogue with the
Malta Association of Small Shareholders.
Internal control Capital Markets Rule 5.97.4
The Board is ultimately responsible for the bank’s system of
internal control and for reviewing its effectiveness. Such
procedures are designed to achieve business objectives and to
manage and mitigate, rather than to eliminate, the risk of failure.
They can only provide reasonable and not absolute assurance
against material error, losses or fraud.
The Group has established the risk management and internal
control structure referred to as the ‘Three Lines of Defence’ to
ensure we achieve our commercial aims while meeting regulatory,
legal, as well as Group requirements. It is a key part of the local
group operational risk management framework.
The First Line of Defence has ultimate ownership of risk and
controls, including read across assessments of identified issues,
events, and near misses, and the delivery of good conduct
outcomes. Risk Owners are accountable for identifying, assessing,
managing and reporting key existing and emerging risks that they
own for their business or function in line with the risk appetite set
by the Board.
The Second Line of Defence reviews and challenges the First Line
of Defence’s activities to help ensure that risk management
decisions and actions are appropriate, within risk appetite, and
supports the delivery of conduct outcomes. The Second Line of
Defence is independent of the risk-taking activities undertaken by
the First Line of Defence and includes CROs, Risk Stewards and
the Operational and Resilience Risk function. Risk Stewards are
accountable for setting policy and control standards to manage
risks, providing advice and guidance to support these policies, and
challenging the First Line of Defence to ensure it is managing risk
effectively.
The Third Line of Defence is Internal Audit, which provides
independent assurance to management and the non-executive
Risk and Audit Committees that the bank’s risk management,
governance and internal control processes are designed and
operating effectively.
The local group’s key risk management and internal control
procedures include the following:
•Global standards: Functional, operating, financial reporting and
certain management reporting standards are established by
global function management Committees, for application
throughout HSBC globally. These are supplemented by
operating standards set by functional and local management as
required for the type of business and geographical location of
each subsidiary.
•Delegation of authority within limits set by the Board: The
Board has delegated specific, clear and unequivocal authority
to the Chief Executive Officer to manage the day-to-day affairs
of the business for which they are accountable within limits set
by the Board. Delegation of authority from the Board requires
the CEO to maintain appropriate apportionment of significant
responsibilities and to oversee the establishment and
maintenance of systems of control that are appropriate to the
business.
•Risk identification and monitoring: Systems and procedures are
in place to identify, control and report on the major risks facing
the bank including, credit, market, liquidity, capital, financial
management, model, reputational, strategic, sustainability and
operational (including accounting, tax, legal, compliance,
fiduciary, information, external fraud, internal fraud, political,
physical, business continuity, systems operations, project and
people risk). Exposure to these risks is monitored by the Risk
Management Meeting, Asset and Liability Committee and
Executive Committee.
•Changes in market conditions/practices: Processes are in place
to identify new risks arising from changes in market conditions/
practices or customer behaviours, which could expose the
bank to heightened risk of loss or reputational damage. Further
improvements have been, and will continue to be,
implemented to combat the inherent challenges posed by
financial crime. In addition, the focus has remained on
regulatory developments and engagement, including the
ongoing supervisory review and evaluation process under the
ECB’s Single Supervisory Mechanism; challenges to balance
business growth and risk management imperatives; internet
crime and fraud; level of change creating operational
complexity and heightened execution risk; and information
security risk.
•IT operations: Centralised functional control is exercised over
all IT developments and operations.
•In order to ensure consistency and benefit from economies of
scale, common Group systems are employed for similar
business processes, wherever practicable.
•Comprehensive annual financial plans are prepared, reviewed
and approved by the Board. Results are monitored and
progress reports are prepared on a monthly basis to enable
comparisons with plan. Financial accounting and management
reporting standards have been established.
•Responsibilities for financial performance against plans and for
capital expenditure, credit exposures and market risk
exposures are delegated with limits to executive management.
In addition, functional management in the bank has been given
the responsibility to implement HSBC policies, procedures and
standards for business and product lines and functions,
including: legal, financial crime and regulatory compliance,
internal audit, human resources, credit risk, market risk,
operational risk, computer systems and operations, and
property management.
•The Chief Risk Officer is responsible for the management of
specific risks within the bank, including credit risk in the
wholesale and retail portfolios, market risk and operational risk.
Risks are monitored via the Risk Management Meeting, which
meets regularly, and via reporting to the Executive Committee,
the Risk Committee and the Board.
•Internal Audit: The establishment and maintenance of
appropriate systems of risk management and internal control is
primarily the responsibility of business management. The
Internal Audit function reports to the Audit Committee and to
the Board. It provides independent and objective assurance in
respect of the adequacy of the design and operating
effectiveness of the bank’s framework of risk management,
control and governance processes, focusing on the areas of
greatest risk to the bank using a risk-based approach. The
Head of Internal Audit also reports to the Board on matters
concerning the operation of the Internal Audit function,
including independence and resourcing.
•Internal Audit issues: Executive management is responsible for
ensuring that any issues raised by the Internal Audit function
are remediated within an appropriate and agreed timeframe.
Confirmation to this effect must be provided to Internal Audit,
which subsequently validates the remediation.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
39
•The bank’s Compliance Department undertakes Regulatory
Compliance and Financial Crime Compliance. From a
regulatory perspective it ensures that the local group continues
to maintain the highest standards of corporate conduct,
including compliance with all the local and international
regulatory obligations and HSBC Group ethical standards and
regulations. With regard to financial crime compliance, it is
responsible for the oversight of Anti-Money Laundering and
Terrorist Financing, Sanctions, Anti-Bribery and Corruption,
Fraud and Tax Evasion risks. Particular attention is given to the
proactive management of identified Financial Crime
Compliance risk issues. Routine governance is managed via the
Executive Committee and reported to the Risk Committee and
to the Board.
•Through the Audit Committee and the Risk Committee, the
Board reviews the processes and procedures to ensure the
effectiveness of the system of internal control of the bank and
its subsidiaries, which are subject to periodic Third Line of
Defence review by Internal Audit.
Capital Markets Rule 5.97.5
The information relating to the Shareholders’ Register required by
this Capital Markets Rule is found in the Directors’ Report.
General meetings
The General Meeting is the highest decision-making body of the
bank. A General Meeting is called by twenty-one days’ notice and
it is conducted in accordance with the Articles of Association of
the bank.
The Annual General Meeting deals with what is termed as
‘ordinary business’, namely the receiving or adoption of the
annual financial statements, the declaration of a dividend, the
appointment and remuneration of the Board (which may or may
not involve an election), the appointment of the external auditors,
and the grant of the authority to the Board to fix the external
auditors’ emoluments. Other business which may be transacted at
a General Meeting will be dealt with as Special Business.
All shareholders registered in the Shareholders’ Register on the
record date as defined in the Capital Markets Rules, have the right
to attend, participate and vote in the General Meeting. A
shareholder or shareholders holding not less than 5% in nominal
value of all the shares entitled to vote at the General Meeting may
request the bank to include items on the agenda of a General
Meeting and/or table draft resolutions for items included in the
agenda of a General Meeting. Such requests are to be received by
the bank at least forty-six calendar days before the date set for the
relative General Meeting. A shareholder who is unable to
participate in the General Meeting can appoint a proxy by written
or electronic notification to the bank. Every shareholder
represented in person or by proxy is entitled to ask questions
which are pertinent and related to items on the agenda of the
General Meeting and to have such questions answered by the
Directors or such persons as the Directors may delegate for that
purpose.
In view of the challenging environment (from a health and safety
aspect) caused by Covid-19 during 2021, the Annual General
Meeting was held remotely and live streamed on 22 April 2021 in
accordance with Legal Notice 288 of 2020.
Statement of compliance with the Code of Principles of Good Corporate Governance
40
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Remuneration Report
Governance
Role of the Remuneration Committee
The bank’s Remuneration and Nomination Committee (the
‘Committee’ or ‘RemNom’) within its remuneration oversight
remit, is responsible for making recommendations on the reward
policy, including on fixed and variable pay. Therefore, its main
activity is to ensure that remuneration policies, incentives created
for managing risk, capital and liquidity, practices and procedures
are in line with the business strategy, objectives, values and long
term interests of the bank, shareholders, other stakeholders and
public interest. The Committee has to satisfy itself that the bank’s
remuneration framework is appropriate to attract, retain and
motivate individuals of the quality required to support the success
of the Company.
The Committee is responsible for recommending to the HSBC
Bank Malta p.l.c. Board of Directors (the ‘Board’) approvals of the
total compensation spend within the annual operating plan. The
Committee works in conjunction with the HSBC Group
Remuneration Committee. However, it has its own Terms of
Reference, which sets out its key responsibilities. 
The Chief Risk Officer attends meetings as necessary to report to
the Committee on the alignment of the bank’s remuneration policy
and proposals with the bank’s risk profile and risk management.
Other members of senior management who are sometimes in
attendance are the Chief Financial Officer and the Head of Human
Resources. The Chief Financial Officer reports on the alignment of
the bank’s Remuneration Policy and proposals with the
Company’s capital profile. The Head of Human Resources attends
when the Remuneration Policy or remuneration matters are
considered.
The Committee seeks advice from the Company’s Risk Committee
and the Company’s Chief Risk Officer, on the alignment of risk
and remuneration and, as necessary, any relevant adjustments for
risk to be considered in respect of the variable pay pool and
remuneration outcomes. The Board, via the Committee’s
recommendation, uses these updates when considering the risk-
related adjustments necessary when setting the variable pay pool,
to ensure that return, risk and remuneration are aligned.
Membership and meetings
The Members of RemNom are Sue Vella (Chairperson), John
Bonello and Andrew Muscat.
Attendance at Remuneration and Nomination Committee
meetings
Attended
Sue Vella
7 out of 7
John Bonello
7 out of 7
Andrew Muscat
6 out of 7
During the year, the Chief Executive Officer, the Head of Human
Resources, the Chief Risk Officer and the Chief Financial Officer
attended some of the meetings of the Committee when deemed
appropriate. None of the executives participated in the discussion
regarding their own remuneration.
In 2021, the Committee did not engage any external adviser. It
only seeks specific legal and/or remuneration advice
independently as and when it considers this to be necessary.
Remuneration Statement
HSBC Bank Malta p.l.c. Remuneration Policy
The bank’s remuneration strategy is designed to competitively
reward the achievement of sustainable performance and to
attract, retain and motivate the very best people who are
committed to a long-term career with the HSBC Group in the long-
term interests of our shareholders. It is also aligned with the EU’s
Capital Requirements Directive (‘CRD’) V, particularly with respect
to those employees identified as having a material impact on the
bank’s risk profile, hereinafter referred to as ‘Identified Staff’, in
accordance with Commission Delegated Regulation (EU)
2021/923, which came into effect during 2021 following its
publication in the Official Journal of the European Union,
superseding Commission Delegated Regulation (EU) 2014/604.
Accordingly, the Remuneration Policy has been updated to align
the classification of Identified Staff within the bank with the new
regulation.
Changes made to the bank’s Remuneration Policy during 2021
also include:
•Amendments to reflect updates to regulatory requirements in
respect of sound remuneration policies emanating from the
entry into force of CRD V;
•The reinforcement of remuneration principles in respect of
employees in control functions. The Remuneration Policy was
updated to the effect that the remuneration of such employees
is independent of the performance of the business areas they
control, but is driven by the achievement of objectives linked to
their functions; and
•Updates in respect of the Sustainable Finance Disclosure
Regulation (EU)2019/2088 designed to require that objectives
included in the performance scorecards of senior management 
and employees take into account appropriate measures linked
to sustainability risks, such as a reduction in carbon footprint;
facilitating financing to assist customers with their transition to
net zero; employee diversity targets; and risk and compliance
measures. These targets / objectives started being applicable
as from 1 January 2022.
In determining remuneration levels for 2021, the Committee
applied the bank’s Remuneration Policy, which takes into account
the interests of shareholders, the HSBC Group and the broader
external context.
Key principles of the remuneration framework include:
•Assessment of performance with reference to clear and
relevant objectives set within a performance scorecard
framework;
•The use of behaviour and performance ratings for all
employees which directly influence pay outcomes;
•Positive adjustments to variable pay for individuals who have
exhibited exemplary conduct who went the extra mile to
courageously do the right thing;
•Negative adjustment to variable pay for individuals who do not
complete mandatory learnings or do not demonstrate the right
values and behaviours which may put the bank, its customers
and stakeholders at risk;
•Our global recognition program, where our employees can
recognise peers and reward positive behaviour in real-time;
•A focus on total compensation (fixed plus variable pay) with
variable pay (namely annual bonus) differentiated by
performance and adherence to HSBC values;
•The use of discretion to assess the extent to which
performance has been achieved; and
•Deferral of a significant proportion of variable pay (where
appropriate) to tie recipients to the future performance of the
bank and align the relationship between risk and reward.
Within this framework, risk alignment of the remuneration
structure is achieved through the following measures:
•Assessment of risk and compliance is a critical part of the
process to determine the performance of all employees,
especially senior executives and Identified Staff.
•Adherence to HSBC values is a prerequisite for any employee
to be considered for variable pay. HSBC values are key to the
running of a sound, sustainable bank. Employees have a
separate HSBC Values rating which directly influences their
overall performance rating, and is therefore considered for their
variable pay determinations.
Remuneration Report
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
41
•For senior executives and certain Identified Staff, part of their
variable pay is deferred (where appropriate) and thereby
subject to malus, which allows unvested/unpaid deferred
awards to be reduced or cancelled if warranted. Similarly, for
paid/vested awards, these are subject to clawback for a
minimum period of seven years from date of grant.
•Employees must not use personal hedging strategies or
remuneration or liability-related contracts of insurance in
connection with any unvested deferred remuneration awards
or any vested awards subject to a retention period.
•Instances of non-compliance with risk procedures or with
expected behaviours are escalated for consideration in variable
pay decisions, including variable pay adjustments for that
performance year and malus of unpaid awards granted in prior
years. For Identified Staff, the Committee and the Board have
oversight of such decisions and can make recommendations to
the HSBC Group Remuneration Committee to reduce or cancel
all or part of any unpaid deferred award.
The Remuneration Policy is available in full on the Bank’s website:
https://www.about.hsbc.com.mt/-/media/malta/en/investor-
relations/210218-hsbc-remuneration-policy-2021.pdf
The bank’s reward strategy
To attract, retain and motivate the very best people, HSBC’s
reward package comprises three key elements:
a. Fixed Remuneration;
b. Benefits; and
c. Variable Remuneration.
These elements are designed to ensure that the bank attains its
targets by including both short-term and long-term incentives in
the reward package. This strategy promotes the employees’
remuneration with the bank’s risk alignment of framework, risk
outcomes and values. The personal conduct of the bank’s people
is critical to the bank’s ability to live up to these commitments.
The bank recognises and rewards exceptional conduct
demonstrated by its employees. Poor conduct and inappropriate
behaviour not in line with HSBC values, or which exposes the
bank to financial, regulatory or reputational risk, is strongly
discouraged.
For senior employees, where appropriate, part of their reward is
deferred, and thereby subject to malus, that is, it can be cancelled
if warranted by events. In order to ensure alignment between
what the bank pays its employees and the bank’s business
strategy, individual performance is assessed against annual and
long-term financial and non-financial objectives summarised in
performance scorecards. This assessment also takes into account
adherence to the HSBC Values encapsulated in the following
statement: ‘we value difference, we succeed together, we take
responsibility and we get it done’. Altogether, performance is
therefore judged not only on what is achieved over the short- and
long-term but also importantly on how it is achieved, as the bank
believes the latter contributes to the soundness and sustainability
of the business.
Structure of remuneration
The following table shows the purpose and relevant features of
each of the three key elements of HSBC’s reward package. The
following structure applies to all employees including Executive
Directors and Senior Management (i.e. members of the Executive
Committee).
Description
Purpose, relevant features and link to strategy
Fixed Pay
Fixed pay reflects the individual’s role, experience and responsibility. It comprises the base salary and in some cases a fixed pay allowance
and/or a pension.
Base salary
Base salaries are paid in cash on a monthly basis and are benchmarked on an annual basis against relevant comparator groups.
Fixed pay allowance
This is typically paid in cash on a monthly basis.
Pensions
These consist of cash allowances in lieu of personal/occupational pension arrangements of international assignees appointed to Senior
Executive position. An employee pension plan scheme is offered to all local employees subject to the terms and conditions of the scheme.
Benefits
Benefits take account of local market practices and include the provision of medical insurance, health assessment, life assurance, and tax
assistance where appropriate.
Variable Pay –
annual
incentive
Variable pay award is discretionary, and is determined and paid in line with internal bank policies and procedures. Variable pay awards are
made to drive and reward performance against annual financial and non-financial measures and adherence to HSBC Values which are
consistent with the medium to long-term strategy and aligns to shareholder interests.
Performance targets are set taking into account the economic environment, strategic priorities and risk appetite. The bank has two rating
scales to measure performance of employees: a four rating scale measuring performance targets achieved and another four rating scale
measuring and assessing the behaviour of employees in line with the HSBC values. All employees receive a behaviour rating as well as a
performance rating, which ensures performance is assessed not only on what is achieved but also how it is achieved. Each department
comes together every year to calibrate the ratings given to employees to ensure a fair, consistent and bias free assessment. This exercise
ensures that the process is transparent and fair across the bank. Performance reporting tools are available to all line managers for the
purpose of undertaking an analytical review of the variable pay decisions for them. Variable pay is delivered in the form of cash and
shares.
Individuals in control functions are assessed according to the objectives specific to the functional role they undertake, to ensure their
remuneration is determined independent of the performance of the business areas they control.
Where variable pay for Identified Staff is more than €50,000 or where variable pay is greater than 33% of Total Compensation, a minimum
of 50% of awards are made in shares. Variable pay is restricted to a maximum of 100% of fixed pay.
A substantial portion, and in any event at least 40 %, of the variable remuneration component, are subject to deferral and vested over a
period which is not less than four years for Non Senior Management and not less than five years for Senior Management. This portion is
correctly aligned with the nature of the business, its risks and the activities of the staff members concerned.
The award is non-pensionable.
Variable pay funding
Funding of the bank’s annual variable pay pool is determined in
the context of profitability and affordability. The Committee
considers many factors in approving the overall variable pay pool.
These include, but are not limited to, individual performance, the
performance of the bank and the performance of the HSBC Group.
These are all considered within the context of the bank’s risk
appetite. The variable pay pool is also shaped by risk
considerations and factors that may arise from any local or Group-
wide notable events. The commercial requirement to remain
competitive in the market is also taken into account in line with
the bank’s annual operating plan. Through the variable pay, the
bank aims to attract, retain and motivate the very best people in a
competitive market while at the same time acting in the best
interest of customers and stakeholders.
Remuneration Report
42
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Performance measurement and risk
adjustment
Under the bank’s remuneration framework, decisions relating to
remuneration of individuals are based on a combination of:
performance against objectives, general individual performance of
the role, and adherence to the HSBC values, business principles,
Group risk-related policies and procedures and Global Standards.
In order to reward genuine performance, individual awards are
made on the basis of a risk-adjusted view of both financial and
non-financial performance. In light of this, the bank has discretion
to adjust an employee’s current year variable pay in such cases as
set out in the table below.
The Committee can also seek advice from the Group
Remuneration Committee, at the level of HSBC Holdings plc, to
reduce or cancel all or part of any unvested deferred award under
the applicable malus and clawback provisions. Appropriate
circumstances include (but are not limited to) the examples set
out in the table below. The Group Remuneration Committee can
also recommend the forfeiture of unvested awards granted in
prior years.
Adjustments would generally be made to the current year variable
pay before application of malus and clawback is considered.
Details of the circumstances where an adjustment, malus and/or
clawback will be considered are set out below:
Type of
action
Type of variable pay awared
affected
Circumstances where action may apply (including, but not limited to):
Adjustment
Current year variable pay
•Detrimental conduct or conduct which brings the business into disrepute.
•Involvement in Group-wide events resulting in significant operational losses, including events which have
caused or have the potential to cause significant harm to HSBC.
•Non-compliance with HSBC Values and other mandatory requirements.
•For specified individuals, insufficient yearly progress in developing an effective AML and sanctions
compliance programme or non-compliance with the DPA and other relevant orders.
•Failure to complete mandatory learning.
Malus
Unvested deferred awards
granted in prior years
•Detrimental conduct or conduct which brings the business into disrepute.
•Past performance being materially worse than originally reported.
•Restatement, correction or amendment of any financial statements.
•Improper or inadequate risk management.
Clawback
Vested or paid awards
•Participation in or responsibility for conduct which results in significant losses.
•Failing to meet appropriate standards of fitness and propriety.
•Reasonable evidence of misconduct or material error that would justify, or would have justified, summary
termination of a contract of employment.
•HSBC or a business unit suffers a material failure of risk management within the context of Group risk
management standards, policies and procedures.
Directors’ Remuneration Report in terms of
Chapter 12 of the Capital Markets Rules
A Directors’ Remuneration Policy was approved by the
shareholders at the Annual General Meeting of the Company held
on 27 November 2020. The Resolution relating to the Directors’
Remuneration Policy had been passed as follows:
Those in favour
280,826,046 votes
Those against
255,305 votes
Abstentions
257,296 votes
The Policy is divided into three major sections; one relating to
Executive Directors, another dedicated to Non-Executive Directors
and the other containing provisions common to all directors. The
said Policy and its implementation are reviewed regularly by
RemNom. Any material amendments to the Policy shall be
submitted to a vote by the General Meeting before their adoption
and in any case at least every four years. No changes to the Policy
are being proposed for approval at the next General Meeting.
The Directors’ Remuneration Policy is available in full on https://
www.about.hsbc.com.mt/investor-relations/annual-general-
meetings.
There were no deviations from the procedure for the
implementation of the Directors’ Remuneration Policy.
Information on Directors’ Remuneration in
terms of Appendix 12.1 of the Capital Markets
Rules
Executive Directors
As stated in the Directors’ Remuneration Policy, Executive
Directors’ total remuneration as salaried employees is regulated in
terms of the bank’s Remuneration Policy and Group’s Standard
Employment Contracts. Therefore, Executive Directors are treated
in a similar manner to all other employees. Hence, their
remuneration is comprised of fixed remuneration, variable
remuneration and other benefits as outlined above. These
elements of remuneration support the achievement of the bank’s
objectives through balancing reward for both short-term and long-
term sustainable performance. Remuneration is designed to
reward success and is aligned with the bank’s risk framework and
risk outcomes. Executive Directors are expected to reflect the
bank’s values in their behaviour and business conduct. Personal
conduct is critical to the ability of living up to these commitments.
Exceptional conduct and behaviour are recognised and at the
same time poor conduct and inappropriate behaviour which may
expose the bank to financial, regulatory, or reputational risk are
strongly discouraged.
Total awards of Executive Directors are subject to deferral and
vest over a period of not less than five years or such other period
as determined by the Committee, and hence subject to malus or
claw back provisions as outlined earlier.
On termination of an executive directorship, Executive Directors
are not entitled to any retirement benefits, supplementary
pensions or termination benefits related to the said termination as
Directors. Upon retirement from their employment, local Executive
Directors shall be subject to the same conditions of any
employee’s Early/Voluntary Retirement Scheme.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
43
Remuneration of Executive Directors for the year ended
31 December 2021:
Simon Vaughan
Johnson
Michel
Cordina
€
€
Fixed pay
446,692
147,666
Variable pay:
–  Immediate Cash
70,454
34,850
–  Immediate Shares*
70,454
—
–  Deferred Cash
46,970
—
–  Deferred Shares*
46,970
—
Benefits
130,510
12,184
Aggregate
812,050
194,700
Effective period
01/01/21 -
31/12/21
01/01/21 -
31/12/21
*  The value of the shares awarded to Simon Vaughan Johnson
amounting to €117,424 relate to performance year 2021. The
number of shares to be awarded in this respect will be formally
communicated on 1 March 2022 and determined on the share price
as at that date. The number of shares awarded during 2021 in
relation to performance year 2020 are disclosed in a subsequent
table ‘Share Awards and Share Options awarded in 2021’ below.
In terms of the requirements within Appendix 12.1 of the Capital
Markets Rules, the following table presents the annual change of
remuneration of the executive directors, of the bank’s
performance, and of average remuneration on a full-time
equivalent basis of the bank’s employees (other than directors)
over the two most recent financial years.
Aggregate
remuneration
awarded
during 2021
Percentage
Annual
Change of
Remuneration
(2020-2021)
Percentage
Annual
Change of the
Bank’s
Performance
(2020-2021)**
Percentage
Annual
change of the
Average
Remuneration
of the Bank’s
employees,
on a full-time
equivalent
basis
(2020-2021)
€
%
%
%
Simon
Vaughan
Johnson
812,050
9%***
47%*****
5%******
Michel
Cordina
194,700
10%****
** The percentage Annual Change of the Bank’s Performance included
in the above table is based on the bank’s profit before tax, as this has
been deemed by management to be the most appropriate basis for
measuring performance.
*** Simon Vaughan Johnson was appointed as an Executive Director
part way during 2020. In this respect, for the purposes of the table
above, the aggregate remuneration paid to him in respect of the
financial year ended 31 December 2020 was annualised to allow for
a meaningful comparison.
**** The aggregate remuneration awarded during 2021 pertaining to
Michel Cordina comprises a one-time Long Service Bonus awarded
in relation to long tenure, which is also awarded to employees in line
with the local policy.
***** The percentage annual change of the bank's performance
appears to be elevated in view of the substantial impact of the
pandemic on the bank's financial results for the year ended 31
December 2020, with subdued profits reported driven primarily by
the increase in credit loss allowances.
****** In order to allow for a meaningful comparison, new joiners
employed during 2021 are excluded from the calculation; the
remuneration paid to terminated employees during 2021 is being
annualised to enable comparison with the annual remuneration paid
in 2020; and the remuneration paid to new joiners employed during
2020 is annualised to enable comparison with the annual
remuneration paid in 2021. The annual remuneration paid to
employees who were in employment for the full calendar years
ended 31 December 2020 and 2021 is compared as normal.
Shares and Share Options awarded in 2021
Grant Date
Share Value €
Number of
Shares
Performance
Period
Immediate Shares
01/03/2021
56,941
11,515
2020
Deferred
Shares*******
01/03/2021
44,020
8,902
2020
******* The exact value of shares awarded will only be established on
the date of issuance. The value of shares is indicative at the time of
the award being reported. The deferred shares will vest in 2026.
None of the Executive Directors received any remuneration from
the bank’s subsidiaries or the HSBC Group.
Determining Executive Directors’ performance
Awards made to Executive Directors reflected the assessment of
each of their performance against scorecard objectives and the
strategic priorities and risk appetite of the bank. This assessment
was conducted by the bank’s RemNom after considering inputs
from the Group General Manager and Chief Executive Officer,
HSBC Europe.
The performance assessment of the Chief Executive Officer
involved the evaluation of the targets achieved against a number
of pre-set objectives. These objectives align with the bank’s
strategy and commitments with clear measurable targets. The
objectives for the Chief Executive Officer include driving safe
business growth, customer satisfaction, employee engagement,
driving the Climate Ambition Program, effective management of
risk and compliance and implementation of the bank’s digital
strategy. The extent to which the Chief Executive Officer would
have reached each objective is discussed and reviewed by the
bank’s RemNom following an evaluation by the Group General
Manager and Chief Executive Officer, HSBC Europe. These
objectives are reviewed on a quarterly basis to ensure ongoing
review and alignment with expected performance.
The variable pay of Simon Vaughan Johnson is reviewed and
approved by the bank’s RemNom on a discretionary basis taking
into account the performance and behaviours demonstrated
during the year in relation to the achievement of the objectives
referred to above. This is also approved by the HSBC Group
Remuneration Committee with due consideration of the bank’s
and individual performance results, with the focus on total
compensation comparative to the internal peer group and the
external market where appropriate.
In line with the bank’s Remuneration Policy, the percentage of
variable pay received by Simon Vaughan Johnson, which amounts
to 53% of his fixed pay (excluding benefits), is lower than the
100% of fixed pay threshold. In addition, as illustrated in the
tables above, 50% of the variable remuneration is subject to
deferral in line with the bank’s policy and the HSBC Group deferral
requirements applied for all variable pay awards as explained in
the table below.
Value of Total Variable Pay
Deferral % of variable
pay is subject to
variance and is split
between cash and
shares
Up to €50,000, provided that total variable pay does
not exceed total fixed pay.
0%
Above €50,000 up to  €500,000 or amounts below
€50,000 where variable pay is greater than 33% of
Total Compensation.
40%
Above  €500,000
60%
The deferred remuneration of Simon Vaughan Johnson vests over
a period of not less than five years. As explained in previous
sections, variable pay is subject to malus and clawback provisions
in certain circumstances, which allow unvested/unpaid deferred
remuneration awards and vested remuneration awards to be
reduced or cancelled if warranted respectively. No use has been
made of provisions allowing the bank to reclaim variable
Remuneration Report
44
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
remuneration during the financial year ended 31 December 2021.
This mechanism ensures that the remuneration of the bank’s
senior executives aligns with achieving the long-term objectives of
the bank.
On the other hand, Michel Cordina’s objectives and performance
pay structure are not based on the mechanism described above in
respect of Simon Vaughan Johnson.  Michel Cordina’s variable
pay is reviewed and approved by the bank’s RemNom following
feedback from the Chief Executive Officer on an annual basis. It is
based on the achievement of set objectives and behaviours
demonstrated during the performance year. These objectives are
linked to business growth, customer engagement, retention and
strengthening of key customer relationships, mainly in the
corporate segment, and engagement with other key stakeholders
and regulators, and ensuring adherence to risk management and
compliance measures. In line with the bank’s Remuneration Policy
the percentage of variable pay received by Michel Cordina, which
amounts to approximately 24% of his fixed pay, is lower than the
100% of fixed pay threshold. In accordance with the bank’s
Remuneration Policy and on the basis of the value of the total
variable pay remunerated, no deferral requirements applied to
Michel Cordina during performance year 2021.
Non-Executive Directors
Non-Executive Directors are not employees of the bank and are
not eligible to receive a base salary, fixed pay allowance, benefits,
pension or any variable pay. Non-Executive Directors receive a fee
for their services and may be reimbursed expenses incurred in
performing their role and any related tax. The appointment of
Non-Executive Directors is governed by a letter of appointment
that sets out the terms of the appointment. This appointment is
not a contract of employment and is subject to all the terms and
conditions of the Company’s Memorandum and Articles of
Association. Non-Executive Directors do not receive any
retirement benefits, supplementary pension or termination
payments for termination or loss of office, whether in terms of the
letter of appointment or otherwise. The appointment may be
terminated before expiry of the term, by either party giving to the
other party one month’s prior written notice or in any manner
allowed by law.
The fee levels payable reflect the time commitment and
responsibilities required of a Non-Executive Director. Fees are
determined by reference to other Maltese companies and
comparable entities within the HSBC Group.
The Non-Executive Directors’ fees are approved in aggregate by
the shareholders at the Annual General Meeting. None of the said
Directors received any remuneration from HSBC Life Assurance
(Malta) Ltd, HSBC Global Asset Management (Malta) Ltd, or HSBC
Group.
The Board reviews each component of the fees periodically to
assess whether, individually and in aggregate, they remain
competitive and appropriate in light of changes in roles,
responsibilities, and/or the time commitment required for the Non-
Executive Directors and to ensure that individuals of the
appropriate calibre are retained or appointed. The Board may
approve changes to the fees within the aggregate amount
approved by shareholders at the Annual General Meeting. The
Board may also introduce any new fee component for Non-
Executive Directors subject to the principles, parameters and other
requirements set out in the Directors’ Remuneration Policy.
Details of Non-Executive Directors’ Committee and Board fees for
the financial years ended 31 December 2021 and 2020 were as
follows:
2021 Fees
2020 Fees
€
€
John Bonello
74,400
74,400
Andrew Muscat
45,600
45,600
Sue Vella
46,800
51,423
Gordon Cordina
—
16,298
Yiannos Michaelides
39,600
47,700
Ingrid Azzopardi
59,700
59,700
Manfred Galdes
50,400
29,149
Total
316,500
324,270
Matthew Colebrook who is employed within the HSBC Group in
the role of Regional Head of Wealth and Personal Banking for
Europe, the Middle East and North Africa and Turkey, was
appointed as a Non-Executive Director of the bank on 11 August
2021. Matthew Colebrook was not paid any fees for holding the
office of director, neither by the bank nor by the HSBC Group. In
this respect, the Directors believe that the requirements
emanating from paragraph (c) of Appendix 12.1 of the Capital
Markets Rules which requires the disclosure of “any remuneration
from any undertaking belonging to the same group where the
term group means parent undertaking and all its subsidiary
undertakings” applies at the level of HSBC Bank Malta p.l.c., the
parent bank, and its subsidiary undertaking respectively, taking
cognisance of his role as Non-Executive Director of the bank.
Accordingly, no disclosure in respect of his remuneration for his
services at HSBC Group level is being made within this report. The
bank has complied in full with the procedure for the
implementation of the Directors’ Remuneration Policy as defined
in Chapter 12 of the Capital Markets Rules.
The Directors’ Remuneration Report for 2020 was approved at the
Annual General Meeting held on 22 April 2021, with 283,671,331
votes in favour, 111,625 votes against and 1,577,608 abstentions.
There were no issues raised on the Report during the said Annual
General Meeting.
This Directors’ Remuneration Report in terms of Chapter 12 of the
Capital Markets Rules is being put forward to an advisory vote of
the 2022 Annual General Meeting in accordance with the
requirements of the Capital Markets Rule 12.26 L.
In accordance with the requirements emanating from Appendix
12.1 of the Capital Markets Rules, the contents of the Directors’
Remuneration Report within this Remuneration Report have been
reviewed by the external auditor to ensure compliance with such
requirements.
Additional remuneration disclosures
The following section of the Remuneration Report presents
additional disclosures in respect of the bank’s Remuneration
Policy required under:
•The Capital Markets Rules issued by the Malta Listing
Authority; and
•Banking Rule 21 (BR21/2022) – Remuneration Policies and
Practices – issued by the Malta Financial Services Authority.
The bank’s Remuneration Policy – Identified Staff
including Executive Directors and Senior
Management
Individuals have been classified as Identified Staff based on
qualitative and quantitative criteria set out in the Commission
Delegated Regulation (EU) 2021/923 that came into force in March
2021. Amongst others, Identified Staff include all Executive
Directors and Senior Management (who make up the Executive
Committee and are hereafter referred to collectively as ‘Senior
Executives’). Accordingly, the figures disclosed in the tables on
the following page relating to Senior Executives also include the
remuneration relating to the Executive Directors disclosed in the
'Information on Directors' Remuneration in terms of Appendix
12.1 of the Capital Markets Rules within the Remuneration Report.
In addition, members of the Asset and Liabilities Management
Meeting and the Risk Management Meeting, as well as staff that
have the authority to approve or veto a decision on any credit
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
45
transaction representing 0.5% of the bank’s CET1 capital are also
classified as Identified Staff. The bank has taken regard of
Commission Delegated Regulation (EU) 2021/923 following its
publication in the Official Journal of the European Union which
came into effect in 2021.
Standard contracts for all Identified Staff employed locally would
generally be indefinite. Normal retirement from the bank would be
in line with local legislation. A minimum three-month notice
period is required for Senior Executives employed by the bank
who would similarly be entitled to a notice of a minimum of three
months in the event that the bank terminates their employment on
grounds of redundancy.
Meanwhile, termination of international assignees appointed to
Senior Executive positions by either the individual or the bank
requires a notice period of up to six months.
All Identified Staff are remunerated less than €1 million per
annum.
Remuneration amounts – Identified Staff
MB
Supervisory
function
MB
Management
function
Other senior
management
Other Identified
Staff
1
Fixed remuneration
Number of Identified Staff
6
2
15
37
2
Total fixed remuneration (€000)
317
738
1,832
2,393
3
Of which: cash-based (€000)
317
576
1,564
2,102
EU-5x
Of which: other instruments (€000)
—
19
82
48
7
Of which: other forms (€000)
—
143
186
243
9
Variable remuneration
Number of Identified Staff
—
2
15
37
10
Total variable remuneration (€000)
—
269
448
242
11
Of which: cash-based (€000)
—
105
357
242
12
Of which: deferred (€000)
—
47
26
—
EU-13a
Of which: shares or equivalent ownership interests (€000)
—
70
39
—
EU-14a
Of which: deferred (€000)
—
47
26
—
17
Total remuneration for the year ended 31 December 2021 (€000)
317
1,007
2,280
2,635
Remuneration awarded for the financial year (REM1)
 
The bank continued its strategy to develop and promote local
talent whilst at the same time enhancing diversity and inclusion
across its workforce. The bank has a number of international
assignees, including the Chief Executive Officer, who are
employed on a time specific contract with the aim to enhance
diversity of thought across the bank. Employees on international
assignment do not receive the collective agreement financial and
non-financial benefits. 
The bank has continued to invest in its people to sharpen their
skills and increase their capabilities. Specific programmes on
Future Skills and a number of Leadership Programs have been
launched in HSBC during 2021 in line with the requirements of the
banking sector and the landscape in which it operates. 
The regulatory environment continues to change and the
requirements to manage the associated risk have increased in
complexity together with the focus of the remediation of the
business. The focus of the bank still remains on ensuring the
creation and continuation of the necessary culture to mitigate
Financial Crime. To this effect, the bank has continued to develop
the skills of its employees with extensive training and
development. During 2021, the bank launched three major
programs: Together against Financial Crime Wave 4; LEAP
(Leadership Excellence & Achieve Program) and the Sustainability
Academy through the HSBC University. These Programs will
ensure continued professional development of our employees
whilst at the same time safeguarding the wellbeing of our
customers and key stakeholders.
Deferred remuneration is typically granted through a Restricted
Share Awards scheme, whereby Identified Staff are awarded
ordinary shares in HSBC Holdings plc to which the employee will
become entitled, generally between one and five years from the
date of the award, and normally subject to the individual
remaining in employment.
Remuneration Report
46
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Deferred remuneration (REM3)
Deferred and
retained
remuneration
Total amount
of deferred
remuneration
awarded for
previous
performance
periods
Of which due
to vest in the
financial year
Of which
vesting in
subsequent
financial years
Amount of
performance
adjustment
made in the
financial year
to deferred
remuneration 
that was due to
vest in the
financial year
Amount of
performance
adjustment
made in the
financial year
to deferred
remuneration
that was due to
vest in future
performance
years
Total amount of
adjustment during
the financial year
due to ex post
implicit
adjustments
(i.e.changes of
value of deferred
remuneration due
to the changes of
prices of
instruments)
Total amount
of deferred
remuneration
awarded before
the financial
year actually
paid out in the
financial year
Total of amount
of  deferred
remuneration
awarded for
previous
performance
period that has
vested but is
subject to
retention
periods
€000
€000
€000
€000
€000
€000
€000
€000
7
MB Management
function
8
Cash-based
136
49
87
—
—
—
50
—
9
Shares or
equivalent
ownership
interests
111
24
87
—
—
13
24
24
13
Other senior
management
14
Cash-based
10
2
8
—
—
—
2
—
15
Shares or
equivalent
ownership
interests
33
12
21
—
—
3
12
2
25
Total amount
as at 31
December 2021
290
87
203
—
—
16
88
26
Information on remuneration of staff whose professional activities have a material impact on the bank’s risk profile (Identified Staff)
(REM5)
Management body remuneration
Business areas
All other
Total as at
31 December
2021
MB
Supervisory
function
MB
Management
function
Total MB
Investment
banking
Retail
banking
Asset
management
Corporate
functions
Independent
internal
control
functions
1
Total number of
Identified Staff
6
2
8
3
6
9
17
12
5
60
2
Of which: members of
the MB (€000)
6
2
8
—
—
—
—
—
—
8
3
Of which: other senior
management (€000)
—
—
—
1
2
1
6
3
2
15
4
Of which: other Identified
Staff (€000)
—
—
—
2
4
8
11
9
3
37
5
Total remuneration of
Identified Staff (€000)
317
1,007
1,324
236
850
544
1,641
998
646
6,239
6
Of which: variable
remuneration (€000)
—
269
269
47
148
52
199
131
113
959
7
Of which: fixed
remuneration (€000)
317
738
1,055
189
702
492
1,442
867
533
5,280
Sign-on and severance payments
In line with Annex XXXIII of the EBA Implementing Technical
Standards on institutions’ public disclosures of the information
referred to in Titles II and III of Part Eight of Regulation (EU) No
575/2013, the bank is required to disclose information in respect
of special payments made to Identified Staff.
During 2021 and 2020, no severance payments or sign-on
payments were made and, in this respect, the REM2 table is not
being disclosed in this Remuneration Report.
Payments of €1 million and above
In line with Annex XXXIII of the EBA Implementing Technical
Standards on institutions’ public disclosures of the information
referred to in Titles II and III of Part Eight of Regulation (EU) No
575/2013, the bank is required to disclose information in respect
of remuneration payments in excess of €1 million.
During 2021 and 2020, no payments of €1 million and over were
made and, in this respect, the REM4 table is not being disclosed in
the Remuneration Report.
Payments to past Directors
During 2021 and 2020, no payments were made to past Directors.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
47
Financial statements
Income statements
for the year ended 31 December
Group
Bank
2021
2020
2021
2020
Notes
€000
€000
€000
€000
Interest and similar income
–  on loans and advances to banks and customers and other assets
7
103,593
109,055
103,593
109,055
–  on debt and other fixed income instruments
7
2,117
4,543
2,117
4,543
Interest expense
8
(7,952)
(7,696)
(7,952)
(7,696)
Net interest income
97,758
105,902
97,758
105,902
Fee income
25,940
22,832
22,380
19,588
Fee expense
(1,831)
(1,872)
(1,234)
(1,390)
Net fee income
9
24,109
20,960
21,146
18,198
Net trading income
10
5,534
8,515
5,534
8,515
Net income/(expense) from financial instruments of insurance operations measured at fair
value through profit or loss
27,225
(2,042)
—
—
Dividend income
11
—
33
1,462
2,033
Net insurance premium income
12
50,866
51,380
—
—
Movement in present value of in-force long-term insurance business
(6,973)
(10,319)
—
—
Other operating income
13
1,406
(69)
1,402
515
Total operating income
199,925
174,360
127,302
135,163
Net insurance claims, benefits paid and movement in liabilities to policyholders
14
(68,632)
(40,937)
—
—
Net operating income before change in expected credit losses and provisions
131,293
133,423
127,302
135,163
Change in expected credit losses and other credit impairment charges
15
995
(25,589)
995
(25,589)
Net operating income
132,288
107,834
128,297
109,574
Employee compensation and benefits
16
(42,326)
(43,805)
(39,843)
(41,068)
General and administrative expenses
17
(55,529)
(46,984)
(51,157)
(41,709)
Depreciation of property, plant and equipment and right-of-use assets
31,33
(3,675)
(3,851)
(3,675)
(3,851)
Amortisation of intangible assets
32
(3,876)
(2,751)
(3,801)
(2,652)
Total operating expenses
(105,406)
(97,391)
(98,476)
(89,280)
Profit before tax
17
26,882
10,443
29,821
20,294
Tax expense
18
(9,127)
(2,871)
(10,158)
(6,173)
Profit for the year
17,755
7,572
19,663
14,121
Earnings per share
19
4.9c
2.1c
The notes on pages 54 to 143 are an integral part of these financial statements.
Financial statements
48
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Statements of comprehensive income
for the year ended 31 December
Group
Bank
2021
2020
2021
2020
Notes
€000
€000
€000
€000
Profit for the year
17,755
7,572
19,663
14,121
Other comprehensive income
Items that will be reclassified subsequently to profit or loss when specific
conditions are met:
Debt instruments measured at fair value through other comprehensive income:
(6,095)
753
(6,095)
753
–  fair value (losses)/gains
46
(9,377)
1,159
(9,377)
1,159
–  income taxes
46
3,282
(406)
3,282
(406)
Items that will not be reclassified subsequently to profit or loss:
Properties:
2,150
304
2,150
304
–  surplus arising on revaluation
46
2,389
338
2,389
338
–  income taxes
46
(239)
(34)
(239)
(34)
Defined benefit obligation:
292
(446)
292
(446)
–  remeasurement of defined benefit obligation
41
450
(686)
450
(686)
–  income taxes
(158)
240
(158)
240
Equity instruments designated at fair value through other comprehensive income:
1
2
1
2
–  fair value gains
46
2
3
2
3
–  income taxes
46
(1)
(1)
(1)
(1)
Other comprehensive income for the year, net of tax
(3,652)
613
(3,652)
613
Total comprehensive income for the year
14,103
8,185
16,011
14,734
The notes on pages 54 to 143 are an integral part of these financial statements.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
49
Statements of financial position
for the year ended 31 December
Group
Bank
2021
2020
2021
2020
Notes
€000
€000
€000
€000
Assets
Balances with Central Bank of Malta, Treasury Bills and cash
20
1,496,407
996,679
1,496,407
996,679
Items in the course of collection from other banks
4,453
4,959
4,453
4,959
Financial assets mandatorily measured at fair value through profit or loss
21
767,808
733,670
—
—
Held for trading derivatives
22
4,640
6,574
4,640
6,574
Loans and advances to banks
23
619,273
589,259
613,062
583,439
Loans and advances to customers
24
3,196,725
3,264,664
3,196,725
3,264,664
Financial investments
25
845,735
877,485
845,733
877,483
Prepayments and accrued income
26
20,558
24,148
17,591
21,236
Current tax assets
3,669
1,813
1,353
505
Reinsurance assets
27
77,972
80,083
—
—
Other non-current assets held for sale
28
6,673
8,919
6,673
8,919
Investments in subsidiaries
29
—
—
30,859
30,859
Investment property
30
1,600
1,600
—
—
Property, plant and equipment
31
41,923
44,206
41,921
44,206
Intangible assets
32
50,168
54,342
16,022
13,152
Right-of-use assets
33
2,569
4,200
2,569
4,200
Deferred tax assets
34
29,119
27,130
29,119
27,130
Other assets
35
5,513
10,728
4,848
9,600
Total assets
7,174,805
6,730,459
6,311,975
5,893,605
Liabilities
Deposits by banks
36
1,397
3,754
1,397
3,754
Customer accounts
37
5,621,195
5,272,961
5,657,681
5,313,754
Items in the course of transmission to other banks
21,573
21,372
21,573
21,372
Held for trading derivatives
22
4,592
6,551
4,592
6,551
Accruals and deferred income
38
21,976
14,843
17,634
11,202
Current tax liabilities
499
88
—
88
Liabilities under investment contracts
39
185,137
170,865
—
—
Liabilities under insurance contracts
40
658,197
648,028
—
—
Provisions for liabilities and other charges
41
21,252
21,031
20,122
19,341
Deferred tax liabilities
34
15,005
17,562
3,722
4,036
Borrowings from group undertaking
42
60,000
—
60,000
—
Subordinated liabilities
43
62,000
62,000
62,000
62,000
Other liabilities
44
12,245
12,990
8,395
9,879
Total liabilities
6,685,068
6,252,045
5,857,116
5,451,977
Equity
Called up share capital
45
108,092
108,092
108,092
108,092
Revaluation reserve
46
24,330
32,718
24,330
32,718
Retained earnings
46
357,315
337,604
322,437
300,818
Total equity
489,737
478,414
454,859
441,628
Total liabilities and equity
7,174,805
6,730,459
6,311,975
5,893,605
Memorandum items
Contingent liabilities
47
143,064
152,296
143,066
152,298
Commitments
48
967,739
1,071,319
967,739
1,071,319
The notes on pages 54 to 143 are an integral part of these financial statements.
The financial statements on pages 48 to 143 were approved and authorised for issue by the Board of Directors on 22 February 2022. The
financial statements were signed on behalf of the bank's Board of Directors by John Bonello (Chairman) and Simon Vaughan Johnson
(Chief Executive Officer) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual
Report and Accounts 2021.
Financial statements
50
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Statements of changes in equity
for the year ended 31 December
Group
Share
capital
Revaluation
reserve
Retained
earnings
Total
equity
Notes
€000
€000
€000
€000
At 1 January 2021
108,092
32,718
337,604
478,414
Profit for the year
—
—
17,755
17,755
Other comprehensive income
Financial investments measured at fair value through other comprehensive income:
–  fair value losses, net of tax
46
—
(6,094)
—
(6,094)
Properties:
–  surplus arising on revaluation, net of tax
46
—
2,150
—
2,150
–  transfer to retained earnings, net of tax
46
—
(4,444)
4,444
—
Defined benefit obligation:
–  remeasurement of defined benefit obligation, net of tax
—
—
292
292
Total other comprehensive income
—
(8,388)
4,736
(3,652)
Total comprehensive income for the year
—
(8,388)
22,491
14,103
Transactions with owners, recognised directly in equity
Contributions by and distributions to owners:
–  share-based payment arrangements, net of tax
—
—
(63)
(63)
–  dividends
50
—
—
(2,717)
(2,717)
Total contributions by and distributions to owners
—
—
(2,780)
(2,780)
At 31 December 2021
108,092
24,330
357,315
489,737
At 1 January 2020
108,092
32,202
329,672
469,966
Profit for the year
—
—
7,572
7,572
Other comprehensive income
Financial investments measured at fair value through other comprehensive income:
–  fair value gains, net of tax
46
—
755
—
755
Properties:
–  surplus arising on revaluation, net of tax
46
—
304
—
304
–  transfer to retained earnings, net of tax
46
—
(543)
543
—
Defined benefit obligation:
–  remeasurement of defined benefit obligation, net of tax
—
—
(446)
(446)
Total other comprehensive income
—
516
97
613
Total comprehensive income for the year
—
516
7,669
8,185
Transactions with owners, recognised directly in equity
Contributions by and distributions to owners:
–  share-based payment arrangements, net of tax
—
—
263
263
Total contributions by and distributions to owners
—
—
263
263
At 31 December 2020
108,092
32,718
337,604
478,414
The notes on pages 54 to 143 are an integral part of these financial statements.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
51
Statements of changes in equity (continued)
for the year ended 31 December
Bank
Share
capital
Revaluation
reserve
Retained
earnings
Total
equity
Notes
€000
€000
€000
€000
At 1 January 2021
108,092
32,718
300,818
441,628
Profit for the year
—
—
19,663
19,663
Other comprehensive income
Financial investments measured at fair value through other comprehensive income:
–  fair value losses, net of tax
46
—
(6,094)
—
(6,094)
Properties:
–  surplus arising on revaluation, net of tax
46
—
2,150
—
2,150
–  transfer to retained earnings, net of tax
46
—
(4,444)
4,444
—
Defined benefit obligation:
–  remeasurement of defined benefit obligation, net of tax
—
—
292
292
Total other comprehensive income
—
(8,388)
4,736
(3,652)
Total comprehensive income for the year
—
(8,388)
24,399
16,011
Transactions with owners, recognised directly in equity
Contributions by and distributions to owners:
–  share-based payment arrangements, net of tax
—
—
(63)
(63)
–  dividends
50
—
—
(2,717)
(2,717)
Total contributions by and distributions to owners
—
—
(2,780)
(2,780)
At 31 December 2021
108,092
24,330
322,437
454,859
At 1 January 2020
108,092
32,202
286,341
426,635
Profit for the year
—
—
14,121
14,121
Other comprehensive income
Financial investments measured at fair value through other comprehensive income:
–  fair value gains, net of tax
46
—
755
—
755
Properties:
–  surplus arising on revaluation, net of tax
46
—
304
—
304
–  transfer to retained earnings, net of tax
46
—
(543)
543
—
Defined benefit obligation:
–  remeasurement of defined benefit obligation, net of tax
—
—
(446)
(446)
Total other comprehensive income
—
516
97
613
Total comprehensive income for the year
—
516
14,218
14,734
Transactions with owners, recognised directly in equity
Contributions by and distribution to owners:
–  share-based payment arrangements, net of tax
—
—
259
259
Total contributions by and distributions to owners
—
—
259
259
At 31 December 2020
108,092
32,718
300,818
441,628
The notes on pages 54 to 143 are an integral part of these financial statements.
Financial statements
52
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Statements of cash flows
for the year ended 31 December
Group
Bank
2021
2020
2021
2020
Notes
€000
€000
€000
€000
Cash flows from operating activities
Interest, fees, loan recoveries and premium receipts
213,257
210,252
135,492
133,959
Interest, fees and claims payments
(84,691)
(76,608)
(8,756)
(9,386)
Payments to employees and suppliers
(87,080)
(94,446)
(78,713)
(86,136)
Cash flows from operating activities before changes in operating assets/liabilities
41,486
39,198
48,023
38,437
(Increase)/decrease in operating assets:
–  financial assets mandatorily measured at fair value through profit or loss
5,072
(3,146)
—
—
–  reserve deposit with Central Bank of Malta
(5,192)
(2,080)
(5,192)
(2,080)
–  loans and advances to customers and banks
335,070
23,841
335,070
23,841
–  Treasury Bills
41,109
(160,019)
41,109
(160,019)
–  other receivables
11,439
2,848
11,439
3,085
(Decrease)/increase in operating liabilities:
–  customer accounts and deposits by banks
333,185
315,160
328,165
307,031
–  other payables
(4,372)
(42,033)
(4,372)
(42,033)
Net cash from operating activities before tax
757,797
173,769
754,242
168,262
–  tax paid
(12,194)
(15,289)
(9,961)
(14,029)
Net cash from operating activities
745,603
158,480
744,281
154,233
Cash flows from investing activities
Dividends received
—
33
950
1,333
Interest received from financial investments
11,897
14,746
11,897
14,746
Purchase of financial investments
(221,697)
(214,787)
(221,697)
(214,787)
Proceeds from sale and maturity of financial investments
249,667
263,519
249,667
263,519
Purchase of property, plant and equipment, investment property and intangible assets
(8,508)
(7,677)
(8,502)
(7,393)
Proceeds from sale of property, plant and equipment, investment property and intangible assets
56
7,903
50
7,903
Net cash from investing activities
31,415
63,737
32,365
65,321
Cash flows from financing activities
Dividends paid
(2,717)
—
(2,717)
—
Proceeds from borrowings from group undertaking
60,000
—
60,000
—
Net cash from financing activities
57,283
—
57,283
—
Net increase in cash and cash equivalents
834,301
222,217
833,929
219,554
Cash and cash equivalents at beginning of year
782,704
554,648
776,884
551,493
Effect of exchange rate changes on cash and cash equivalents
(17,334)
5,839
(17,296)
5,837
Cash and cash equivalents at end of year
51
1,599,671
782,704
1,593,517
776,884
The notes on pages 54 to 143 are an integral part of these financial statements.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
53
Notes on the financial statements
1
Reporting entity
HSBC Bank Malta p.l.c. (the ‘local group’) is a limited liability company domiciled and incorporated in Malta.
The consolidated financial statements of the local group as at and for the year ended 31 December 2021 comprise the bank and its
subsidiaries. All amounts have been rounded to the nearest thousand, unless otherwise stated.
2
Basis of preparation
(a)Compliance with IFRSs as adopted by the EU
These consolidated financial statements have been prepared in accordance with the requirements of International Financial Reporting
Standards (‘IFRSs’) as issued by the International Accounting Standards Board (‘IASB’), including interpretations issued by the IFRS
Interpretations Committee, and as endorsed by the European Union (‘EU’). At 31 December 2021, there were no unendorsed standards
effective for the year ended 31 December 2021 affecting these consolidated and separate financial statements, and local group‘s
application of IFRSs results in no differences between IFRSs as issued by the IASB and IFRSs as endorsed by the EU.
These financial statements have also been drawn up in accordance with the provisions of the Banking Act (Cap. 371) and the Maltese
Companies Act (Cap. 386), enacted in Malta.
(b)Historical cost convention
These financial statements have been prepared on the historical cost basis, except for the intangible asset reflecting the present value of
in-force long-term insurance business, and the following items that are measured at fair value:
•Held for trading derivatives;
•Treasury Bills;
•Financial assets mandatorily measured at fair value through profit or loss;
•Financial investments;
•Property within ‘Property, plant and equipment’ and ‘Investment property’; and
•Liabilities under investment contracts.
(c)Interpretations and amendments to standards adopted by the local group
During 2021, the local group and the bank adopted a number of interpretations and amendments to standards in the consolidated
financial statements of the local group and the separate financial statements of the bank. These changes did not have a significant
impact on the local group’s accounting policies and on the financial performance and financial position.
The most significant change emanating from the newly adopted interpretations and amendments to standards during 2021 relates to the
amendments in respect of the interest rate benchmark reform. The local group’s and bank’s assessment of the effect of the interest rate
benchmark reform is disclosed hereunder.
Interest Rate Benchmark Reform
The IASB published ‘Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16’ in August
2020, which became effective from 1 January 2021 and was also endorsed for use by the EU during 2021. These amendments represent
the second phase of the IASB’s project on the effects of interest rate benchmark reform, addressing issues affecting financial statements
when changes are made to contractual cash flows as a result of the reform.
As a result of the limited exposure to IBOR related financial instruments, these amendments had an insignificant effect on the local
group’s financial statements.
Financial instruments carried using amortised cost measurement
‘Phase 2’ of the amendments requires that, for financial instruments carried using amortised cost measurement (that is, financial
instruments measured at amortised cost and debt instruments measured at fair value through other comprehensive income), changes to
the basis for determining the contractual cash flows required by interest rate benchmark reform are reflected by adjusting the effective
interest rate. No immediate gain or loss is recognised.
These expedients are only applicable to changes that are required by the interest rate benchmark reform, which is the case if, and only if,
the change is necessary as a direct consequence of the interest rate benchmark reform and the new basis for determining the contractual
cash flows is economically equivalent to the previous basis (that is, the basis immediately preceding the change).
As a result, under these amendments, changes made to a financial instrument that are economically equivalent and required by the
interest rate benchmark reform, do not result in the derecognition or a change in the carrying amount of the financial instrument, but
instead require the effective interest rate to be updated to reflect the change in the interest rate benchmark.
Where some or all of a change in the basis for determining the contractual cash flows of a financial asset and liability does not meet the
above criteria, the above practical expedient is first applied to the changes required by the interest rate benchmark reform, including
updating the instrument’s effective interest rate. Any additional changes are accounted for in the normal way (that is, assessed for
modification or derecognition, with the resulting modification gain/loss recognised immediately in profit or loss where the instrument is
not derecognised).
The bank’s financial instruments carried using amortised cost measurement that are deemed to be impacted by the interest rate
benchmark reform solely consist of the following:
•2 lending exposures classified within ‘loans and advances to customers’ and amounting to €1.2 million as at 31 December 2021,
which are measured at amortised cost and are linked to GBP LIBOR; and
Notes on the financial statements
54
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
•4 positions classified within ‘financial investments’ and amounting to €36 million as at 31 December 2021, which are measured at fair
value through other comprehensive income and are linked to US LIBOR. The latter benchmark rate is expected to be demised on
30 June 2023, which is beyond the contractual maturity of these positions, all of which are expected to mature during the financial
year ending 31 December 2022.
In the case of both exceptions mentioned above, the amendments have an insignificant impact on the financial statements.
Exposures classified within the remaining principal portfolios of financial instruments measured using amortised cost measurement,
namely ‘Balances with Central Bank of Malta’, ‘Treasury Bills’, ‘Loans and advances to banks’, ‘Loans and advances to customers’,
‘Financial Investments’ and ‘Subordinated Liabilities’ are linked to EURIBOR. As at 31 December 2021, there is no current indication that
this benchmark rate will be demised in the near future and, in this respect, these are not deemed to be impacted by the interest rate
benchmark reform.
Financial instruments measured at fair value through profit or loss
The local group’s ‘held for trading derivatives’ are not designated as hedging instruments in accordance with IAS 39 / IFRS 9. In addition,
‘held for trading derivatives’ comprise interest rate swaps which are denominated in euro and are linked to EURIBOR.
In this respect, since there is no current indication that this benchmark rate will be demised in the near future, these are not deemed to
be impacted by the interest rate benchmark reform.
Lease liabilities
For lease liabilities where there is a change to the basis for determining the contractual cash flows, as a practical expedient the lease
liability is remeasured by discounting the revised lease payments using a discount rate that reflects the change in the interest rate where
the change is required by the interest rate benchmark reform. If lease modifications are made in addition to those required by the interest
rate benchmark reform, the normal requirements of IFRS 16 are applied to the entire lease modification, including those changes required
by the interest rate benchmark reform.
The local group’s lease liabilities are not linked to a benchmark rate and, in this respect, are not deemed to be impacted by the interest
rate benchmark reform.
Standards adopted during the year ended 31 December 2021
No new standards were adopted during the year.
(d)Future accounting developments
Minor amendments to IFRSs
The IASB has published a number of minor amendments to IFRSs that are effective from 1 January 2022, which have been endorsed for
use by the EU. The IASB has also published a number of minor amendments to IFRSs that are effective from 1 January 2023, which have
not yet been endorsed by the EU. The local group expects they will have an insignificant effect, when adopted, on the consolidated
financial statements of the local group and the separate financial statements of the bank.
New IFRSs
IFRS 17 ‘Insurance Contracts’
IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with amendments to the standard issued in June 2020. The standard sets out the
requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. Following the
amendments, IFRS 17 is effective from 1 January 2023. The standard has been endorsed for use in the EU. The local group is in the
process of implementing IFRS 17. Industry practice and interpretation of the standard are being embedded in the local group.
Additionally, the impact on the forecast future returns of the insurance business is dependent on the growth, duration and composition of
the local group’s insurance contract portfolio. Therefore, the likely financial impact of its implementation continues to be assessed.
However, the impact compared with the local group’s  current accounting policy for insurance contracts, which is set out in policy 3(m)
below, is expected to be as follows:
•Under IFRS 17, there will be no present value of in-force business ('PVIF') asset recognised. Instead the estimated future profit will be
included in the measurement of the insurance contract liability as the contractual service margin (‘CSM’), and this will be gradually
recognised in revenue as services are provided over the duration of the insurance contract. While the profit over the life of an
individual contract will be unchanged, its emergence will be later under IFRS 17. The removal of the PVIF asset and the recognition of
the CSM, which is a liability, will reduce equity. The PVIF asset will be eliminated to equity on transition, together with other
adjustments to assets and liabilities to reflect IFRS 17 measurement requirements and any consequential amendments to financial
assets within the scope of IFRS 9.
•IFRS 17 requires increased use of current market values in the measurement of insurance liabilities. Changes in market conditions for
certain products measured under the general measurement approach are immediately recognised in profit or loss, while changes in
market conditions for other products measured under the variable fee approach are included in the measurement of CSM.
•In accordance with IFRS 17, directly attributable costs will be incorporated in the CSM and recognised in the results of insurance
services as a reduction in reported revenue, as profit is recognised over the duration of insurance contracts. Costs that are not directly
attributable will remain in operating expenses. This will result in a reduction in reported operating expenses compared with the current
accounting policy.
•An update on the likely financial impacts on the local group’s insurance business will be provided at or around the announcement of
the local group’s interim results, when this impact is expected to be reasonably estimable.
(e)Functional and presentation currency
The functional currency of the bank is Euro, which is also the presentation currency of the consolidated financial statements of the local
group.
(f)Critical accounting estimates and judgements
The preparation of financial information in accordance with the requirements of IFRSs as adopted by the EU requires the use of estimates
and judgements about future conditions. In view of the inherent uncertainties and the high level of subjectivity involved in the recognition
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
55
or measurement of items listed below, it is possible that the outcomes in the next financial year could differ from those on which
management’s estimates are based, resulting in materially different conclusions from those reached by management for the purposes of
the 2021 Financial Statements. Management’s selection of the local group’s accounting policies which contain critical estimates and
judgements (listed below) reflects the materiality of the items to which the policies are applied, the high degree of judgement and
estimation of uncertainty involved:
•Expected credit losses on loans and advances: Note 3(b)(iv) and Note 15;
•Valuation of financial instruments: Note 5;
•Policyholder claims and benefits: Note 3(m)(ii) and Note 14;
•Present value of in-force long-term assurance business (‘PVIF’): Note 3(m)(iv) and Note 32.
Further information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment,
related to the matters highlighted above, is included in Note 58.
In management’s view, apart from judgements involving estimations as reflected above, there are no significant or critical judgements
made in the process of applying the local group’s accounting policies that have a more significant effect on the amounts recognised in
the financial statements.
(g)Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the local group has the resources to
continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information
relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital
resources. These considerations include stressed scenarios that reflect the persistent uncertainty that the global Covid-19 pandemic has
had on the local group’s and bank’s operations, as well as considering potential impacts from other top and emerging risks, and the
related impact on profitability, capital and liquidity.
3
Significant accounting policies
This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements.
These policies have been consistently applied to all the years presented, unless otherwise stated.
(a)Basis of consolidation
iConsolidation
HSBC Bank Malta p.l.c. controls and consequently consolidates an entity when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. Control is initially assessed based
on consideration of all facts and circumstances, and is subsequently reassessed when there are significant changes to the initial setup.
The local group is considered to have power over an entity when it has existing rights that give it the current ability to direct the relevant
activities. For the local group to have power over an entity, it must have the practical ability to exercise those rights.
Where an entity is governed by voting rights, the group would consolidate when it holds, directly or indirectly, the necessary voting rights
to pass resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other
factors, including having exposure to variability of returns, power over the relevant activities or holding the power as agent or principal.
The local group may have power over an entity even though it holds less than a majority of the voting rights, if it holds additional rights
arising through other contractual arrangements or substantive potential voting rights which give it power.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the
consideration, including contingent consideration, given at the date of exchange. Acquisition-related costs are recognised as an expense
in profit or loss in the period in which they are incurred. The acquired identifiable assets, liabilities and contingent liabilities are generally
measured at their fair values at the date of acquisition.
Goodwill is measured as the excess of the aggregate of the consideration transferred, the amount of non-controlling interest and the fair
value of the local group’s previously held equity interest, if any, over the net of the amounts of the identifiable assets acquired and the
liabilities assumed. On an acquisition-by-acquisition basis, the amount of non-controlling interest is measured either at fair value or at the
non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. For acquisitions achieved in stages, the previously
held equity interest is remeasured at the acquisition-date fair value with the resulting gain or loss recognised in profit or loss.
Changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control are treated as transactions between
equity owners of the local group and the net impact is reported within equity.
Subsidiaries are fully consolidated from the date on which control is transferred to the local group. They are deconsolidated from the date
that control ceases.
iiStructured entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who
controls the entity, for example when any voting rights relate to administrative tasks only, and key activities are directed by contractual
arrangements. Structured entities often have restricted activities and a narrow and well defined objective.
Structured entities are assessed for consolidation in accordance with the local group’s accounting policy set out above.
When assessing whether to consolidate HSBC managed investment funds, the local group reviews all facts and circumstances to
determine whether the local group, as fund manager, is acting as agent or principal. The local group may be deemed to be a principal,
and hence would control and consolidate the funds, i) when it acts as fund manager and cannot be removed without cause, ii) has
variable returns through significant unit holdings and/or a guarantee provided, and iii) is able to influence the returns of the funds by
exercising its power.
Notes on the financial statements
56
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
iiiTransactions eliminated on consolidation
All intra-group balances and income and expenses arising from intra-group transactions are eliminated on consolidation. Unrealised
losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment of the
transferred asset.
(b)Financial assets
iInitial recognition
The local group recognises a financial asset in its statement of financial position when it becomes a party to the contractual provisions of
the instrument. Regular way purchases and sales of financial assets are recognised on the trade date, which is the date on which the
local group commits to purchase or sell the asset. Accordingly, the local group uses trade date accounting for regular way contracts
when recording financial asset transactions. All financial assets are initially recognised at fair value plus, in the case of a financial asset
not measured at fair value through profit or loss, transaction costs that are directly attributable to the financial asset. Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of
the consideration given or received).
iiClassification and measurement
The classification and measurement of financial assets will depend on how these are managed (the entity’s business model) and their
contractual cash flow characteristics.
If a financial asset is held within a business model other than ‘hold to collect’ or ‘hold to collect and sell’, then the financial asset is
required to be measured at fair value through profit or loss (‘FVTPL’) without further analysis. For those financial assets where the
contractual cash flows arising on specified dates are solely payments of principal and interest (‘SPPI’) on the principal amount
outstanding, classification at amortised cost or fair value through other comprehensive income (‘FVOCI’) will depend on whether the
business model is to hold financial assets for the collection of contractual cash flows or whether the objective of the business model is
achieved by both the collection of contractual cash flows and from the sale of financial assets. If an instrument contains contractual cash
flows which do not represent solely payments of principal and interest, then the classification to be used is FVTPL, even if it is held in a
business model that is either ‘hold to collect’ or ‘hold to collect and sell’.
The business model of the local group’s portfolios is determined by key management personnel and reflects the strategic purpose and
intention for the portfolios and how the performance of the portfolios is assessed. Since the business model is set at a portfolio level, the
classification assessment for this criterion is accordingly performed at that level. Because the key distinction between the two business
models identified in IFRS 9 is whether or not ‘sales’ are intrinsic to achieving the desired objectives, it is important to identify what is
meant by ‘sales’. For the purposes of the business model assessment, these are transfers which would result in derecognition.
For those assets where the intention of the business model is to hold the financial assets to collect the contractual cash flows or to hold
to collect contractual cash flows and to sell, the local group assesses whether the cash flow characteristics of these assets meet the SPPI
requirements of IFRS 9. ‘Principal’ is the fair value of the financial asset at initial recognition. It is not the amount that is due under the
contractual terms of an instrument. ‘Interest’ is the compensation for time value of money and credit risk of a basic lending-type return. A
basic lending-type return could also include consideration for other basic lending risks (for example, liquidity risk) and consideration for
costs associated with holding the financial asset for a particular period of time (for example, servicing or administrative costs) and/or a
profit margin.
Unlike the business model assessment, the SPPI assessment is performed for each individual product or portfolio of products. The
following considerations are made when assessing consistency with SPPI:
•variable interest rates and modified relationships with the time value of money;
•leverage, being a contractual cash flow characteristic of some financial assets that increases the variability of the contractual cash
flows with the result that they do not have economic characteristics of interest;
•contractual terms that allow the issuer to prepay (or the holder to put a debt instrument back to the issuer) before maturity and the
prepayment amount substantially represents unpaid amounts of principal and interest, which may include reasonable compensation
for early termination of the contract;
•contractual terms that allow the issuer or holder to extend the contractual term and the terms of the extension option result in
contractual cash flows during the extension period that are solely payments of principal and interest, which may include reasonable
compensation for the extension of the contract;
•changes to contractual cash flows may be caused by an underlying contingent event (a trigger) such as contractual term resetting
interest to a higher amount in the event of a missed payment; and
•contractual changes in interest rates.
Financial assets measured at amortised cost
Financial assets that are held to collect the contractual cash flows and which contain contractual terms that give rise on specified dates
to cash flows that are solely payments of principal and interest are measured at amortised cost. Such financial assets comprise primarily
loans and advances to banks and customers.
The local group may commit to underwriting loans on fixed contractual terms for specified periods of time. When the local group intends
to hold the loan, the loan commitment is included in the impairment calculations set out below.
The amortised cost is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus or
minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity
amount and adjusted for any loss allowance.
Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by both collecting contractual cash flows and selling and which contain
contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at FVOCI.
These comprise primarily debt securities and other fixed income securities classified within ‘Financial Investments’ and Treasury Bills
classified within ‘Balances with Central Bank of Malta, Treasury Bills and cash’.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
57
They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign
currency exchange gains and losses) are recognised in other comprehensive income until the assets are sold. Upon disposal, the
cumulative gains or losses in other comprehensive income are recognised in the income statement. Financial assets measured at FVOCI
are included in the impairment calculations set out below and impairment is recognised in profit or loss.
The local group’s debt securities and Treasury Bills are classified at FVOCI under IFRS 9 given that the objective of the business model is
achieved by both the collection of contractual cash flows and the sale of the financial assets.
Equity securities measured at fair value with fair value movements presented in other comprehensive income
The equity securities for which fair value movements are shown in other comprehensive income are business facilitation and other similar
investments where the local group holds the investments other than to generate a capital return. Gains or losses on the derecognition of
these equity securities are not transferred to profit or loss (dividend income is recognised in profit or loss). Otherwise, equity securities
are measured at fair value through profit or loss.
Financial assets mandatorily measured at fair value through profit or loss
Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. Financial assets held for trading are
held principally for the purpose of selling in the near term or are part of a portfolio of financial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-term profit-taking. These assets are classified in the ‘other’ business model
and measured at FVTPL. In addition, financial assets are measured at FVTPL if they do not contain contractual terms that give rise on
specified dates to cash flows that are SPPI.
The portfolios of all financial assets attributable to the local group’s insurance operations are managed and performance is evaluated on a
fair value basis. The insurance subsidiary is primarily focused on fair value information and uses that information to assess the assets’
performance and to make decisions. The contractual cash flows of the debt securities are solely payments of principal and interest.
However, these securities are neither held for the purpose of collecting contractual cash flows nor held both for collecting contractual
cash flows and for sale. The collection of contractual cash flows is only incidental to achieving the business model’s objective. The
subsidiary has not taken the option to irrevocably designate any equity securities as FVOCI. Consequently, all investments attributable to
insurance operations are mandatorily measured at FVTPL.
Financial instruments designated at fair value through profit or loss
Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out
below and are so irrevocably designated at inception:
•the use of the designation removes or significantly reduces an accounting mismatch;
•a group of financial assets and liabilities or a group of financial liabilities is managed and its performance is evaluated on a fair value
basis, in accordance with a documented risk management or investment strategy; and
•the financial liability contains one or more non-closely related embedded derivatives.
Under this criterion, the financial instruments designated by the local group comprise financial liabilities under unit-linked investment
contracts.
Liabilities to customers under unit-linked contracts are determined based on the fair value of the assets held in the linked funds, with
changes recognised in profit or loss. Designation at fair value of the financial liabilities under investment contracts allows the changes in
fair values of these financial liabilities to be recorded in profit or loss and presented in the same line as the changes in fair value of the
assets held in the linked funds. These financial assets are mandatorily measured at FVTPL. If no fair value designation was made for the
customer liabilities, an accounting mismatch would arise. The related financial assets and financial liabilities are managed and reported to
management on a fair value basis.
Subsequent changes in fair values are recognised in the income statement in ‘Net income from financial instruments of insurance
operations measured at fair value through profit or loss’.
iiiDerecognition of financial assets
Financial assets are derecognised when the contractual rights to receive cash flows from the assets have expired or when the local group
has transferred its contractual right to receive the cash flows of the financial assets, and either:
•substantially all the risks and rewards of ownership have been transferred; or
•the local group has neither retained nor transferred substantially all the risks and rewards, but has not retained control.
ivImpairment of amortised cost and FVOCI financial assets
ECL are recognised for loans and advances to banks and customers, other financial assets measured at amortised cost, debt instruments
measured at FVOCI, and certain loan commitments and financial guarantee contracts.
At initial recognition, an allowance (or provision in the case of loan commitments and financial guarantees) is required for ECL resulting
from default events that are possible within the next 12 months, or less, where the remaining life is less than 12 months (12-month ECL).
In the event of a significant increase in credit risk, an allowance (or provision) is required for ECL resulting from all possible default events
over the expected life of the financial instrument (lifetime ECL). Financial assets where 12-month ECL is recognised are considered to be
‘stage 1’; financial assets which are considered to have experienced a significant increase in credit risk (‘SICR’) are classified as ‘stage 2’;
and financial assets for which there is objective evidence of impairment, and which are so considered to be in default or otherwise credit
impaired, are classified as ‘stage 3’. Purchased or originated credit impaired financial assets (‘POCI’) are treated differently, as set out
below.
Unimpaired and without significant increase in credit risk (stage 1)
ECL resulting from default events that are possible within the next 12 months (12-month ECL) are recognised for financial instruments
that remain in stage 1.
Significant increase in credit risk (SICR or stage 2)
The general principle of IFRS 9 ECL accounting requires that the credit risk of financial instruments within the scope of impairment be
assessed for significant increase since initial recognition at each balance sheet date. If there is a SICR, the financial instruments are
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
transferred into stage 2 and lifetime ECL is recognised. The principle of SICR is achieved by performing an assessment to compare the
risk of default occurring at the reporting date with the risk of default occurring at the date of initial recognition.
Accordingly, an assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting
period by considering the change in the risk of default occurring over the remaining life of the financial instrument. The assessment
explicitly or implicitly compares the risk of default occurring at the reporting date compared with that at initial recognition, taking into
account reasonable and supportable information, including information about past events, current conditions and future economic
conditions. The assessment is unbiased, probability-weighted, and to the extent relevant, uses forward-looking information consistent
with that used in the measurement of ECL. The analysis of credit risk is multifactor. The determination of whether a specific factor is
relevant and its weight compared with other factors depends on the type of product, the characteristics of the financial instrument and
the borrower. Therefore, it is not possible to provide a single set of criteria that will determine what is considered to be a SICR, and these
criteria will differ for different types of lending, particularly between retail and wholesale. However, unless identified at an earlier stage,
all financial assets are deemed to have suffered a significant increase in credit risk when 30 days past due. In addition, wholesale loans
that are individually assessed, typically corporate and commercial customers, and included on a ‘Watch or Worry’ list, are included in
stage 2.
Wholesale exposures are usually managed on an individual basis for credit purposes, through relationship managers who have access to
the customers and their financial information. A Customer Risk Rating (‘CRR’) is assigned to each customer and is reviewed at least
annually.
Although the CRR is assigned on an obligor/counterparty level rather than at the financial instrument level, it can still be used to assess
SICR as long as it meets the underlying principles.
In applying the above, the CRR of the counterparty is inferred onto the outstanding financial instruments. For example, if a customer has
a CRR of 3 when a loan is underwritten, the loan will have on initial recognition a CRR of 3. If at the subsequent period end, the
customer’s CRR has deteriorated to 5 and a second loan is being granted to the customer, both loans will have a CRR of 5 on that day.
For the first loan, the CRR has increased from 3 to 5. If this is considered significant, it will be transferred to stage 2. For the second loan,
the initial recognition CRR is 5. It will remain in stage 1 until the CRR has increased significantly in subsequent periods. While all
outstanding loans to the same obligor/counterparty will have the same CRR at the reporting date, the respective loans might be in
different stages depending on the initial recognition CRR, unless the obligor is in the ‘Watch or Worry’ status and/or past due by more
than 30 days, in which case all associated facilities (excluding those cases on the list for non-credit related reasons) will be transferred to
stage 2 immediately.
A CRR on its own is not a measure that meets all the requirements of IFRS 9 (e.g. it does not incorporate forward-looking information).
However, within the HSBC Group, CRRs are used to determine regulatory Probabilities of Default (‘PDs’), and with appropriate
adjustments, these PDs are used for IFRS 9 purposes. Each CRR is associated with an external rating grade by reference to long-run
default rates for that grade, represented by the average of issuer-weighted historical default rates. This mapping between internal and
external ratings is indicative and may vary over time. Therefore regulatory PD models calibrated at the level of HSBC Group are leveraged
to derive a measure that is appropriate to assess SICR under IFRS 9.
As regulatory PDs are generally calculated over 12 months, one of the adjustments required is to incorporate the term structure into the
PD to obtain the lifetime PD. The lifetime PD is determined by calculating the PD for each year over the life of the financial instrument.
For example, for a five-year loan, PDs are calculated for each of the five years. The year-1 PD is calculated as the probability of the loan
defaulting within the first year of it being issued. The year-2 PD is calculated as the probability of the loan surviving the first year but
defaulting in the second year. The same principle of survival applies to the PDs of years 3-5. These yearly PDs are added together to
arrive at the cumulative lifetime PD. As each year passes, the cumulative lifetime PD reduces in line with the reduction in the residual life
of the loan. Albeit, SICR is measured by comparing the average PD for the remaining term estimated at origination with the equivalent
estimation at reporting date.
For wholesale portfolios, the quantitative comparison assesses default risk using a lifetime PD which encompasses a wide range of
information including the obligor’s CRR, macroeconomic condition forecasts and credit transition probabilities. For origination CRRs up to
3.3, SICR is measured by comparing the average PD for the remaining term estimated at origination with the equivalent estimation at the
reporting date. The quantitative measure of significance varies depending on the credit quality at origination as follows:
Origination CRR
Significance trigger – PD to increase by
0.1-1.2
15bps
2.1-3.3
30bps
For CRRs greater than 3.3 that are not impaired, SICR is considered to have occurred when the origination PD has doubled. The
significance of changes in PD was informed by expert credit risk judgement, referenced to historical credit migrations and to relative
changes in external market rates.
For loans originated prior to the implementation of IFRS 9, the origination PD does not include adjustments to reflect expectations of
future macroeconomic conditions since these are not available without the use of hindsight. In the absence of this data, origination PDs
must be approximated assuming through-the-cycle (‘TTC’) PDs and TTC migration probabilities, consistent with the instrument’s
underlying modelling approach and the CRR at origination. For these loans, the quantitative comparison is supplemented with additional
CRR deterioration-based thresholds, as set out in the table below:
Origination CRR
Additional significance criteria – number of CRR grade notches deterioration required
to identify as significant credit deterioration (stage 2) (>or equal to)
0.1
5 notches
1.1-4.2
4 notches
4.3-5.1
3 notches
5.2-7.1
2 notches
7.2-8.1
1 notch
8.3
0 notch
Retail exposures, unlike wholesale exposures, are not managed on a credit by credit basis (e.g. through relationship managers), due to
the high volume of relatively low value and homogeneous exposures. As a result, it is not feasible to replicate the wholesale approach for
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
59
retail exposures. The retail methodology takes into account the nature of the retail exposures and the underlying credit risk management
practices. The retail portfolio comprises mortgages, personal loans and overdrafts, as well as credit cards.
Utilisation of the retail methodology to determine whether a SICR has occurred is based on meeting the following three criteria:
•the credit risk of exposures within the portfolio are similar;
•any increase in the credit risk below the threshold is not considered significant; and
•the risk measure used (e.g. PD) includes all available information, including forward-looking information.
Given how retail customers are accepted and managed for credit risk, retail customers within a particular segment will have similar credit
risk at initial recognition. The measure, or threshold, used to assess SICR for the retail portfolios is the average PD twelve months prior to
exposures falling more than 30 days past due. Portfolio segments whose 12-month default rate is higher than this threshold would be
classified as stage 2 (the look back method). Within each portfolio, the stage 2 accounts are defined as accounts with an adjusted 12-
month PD greater than the average 12-month PD of loans in that portfolio 12 months before they become 30 days past due. The expert
credit risk judgement is that no prior increase in credit risk is significant. This portfolio-specific threshold identifies loans with a PD higher
than would be expected from loans that are performing as originally expected, and higher than what would have been acceptable at
origination. It therefore approximates a comparison of origination to reporting date PDs.
With respect to mortgages, through the look back method, it has been determined that all exposures that are one day past due would
require such exposures to be classified as stage 2. In this respect, the transfer criterion for the mortgages portfolio is assessed on the
instrument’s delinquency period.
For portfolios of debt securities where external market ratings are available and internal credit ratings are not used in credit risk
management, the debt securities will be classified in stage 2 if their credit risk increases to the extent they are no longer considered
investment grade. Investment grade is where the financial instrument has a low risk of incurring losses, the structure has a strong
capacity to meet its contractual cash flow obligations in the near term, and adverse changes in economic and business conditions in the
longer term may, but will not necessarily, reduce the ability of the borrower to fulfil their contractual cash flow obligations.
Credit impaired (stage 3)
IFRS 9 requires an assessment of the extent of increase in credit risk of a financial instrument since initial recognition. This assessment is
performed by considering the change in the risk of default occurring over the remaining life of the financial instrument. As a result, the
definition of default is important.
IFRS 9 does not specifically define default, but requires it to be applied on a consistent basis with internal credit risk management
practice for the relevant instruments and requires consideration of qualitative factors where appropriate. In addition, IFRS 9 also
introduces a rebuttable presumption that default does not occur later than when a financial asset is 90 days past due unless there is
reasonable and supportable information to demonstrate that a more lagging criterion is more appropriate.
In this respect, the local group determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective
evidence, primarily whether:
•contractual payments of either principal or interest are past due for 90 days or more;
•there are other indications that the borrower is unlikely to pay, such as that a concession has been granted to the borrower for
economic or legal reasons relating to the borrower’s financial condition; and
•the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due.
Therefore, the definitions of credit impaired and default are aligned as far as possible so that stage 3 represents all loans which are
considered defaulted or otherwise credit impaired.
With respect to wholesale exposures, the local group has incorporated evidence of credit impairment/default into the internal CRR used
to rate wholesale exposures. A defaulted or credit impaired financial asset is assigned a CRR of 9 or 10. These exposures are usually
managed by the local group’s loan management unit (‘LMU’).
With respect to retail exposures, evidence of credit impairment/default is also incorporated into the PD model. A retail exposure with a
PD of 1 (i.e. 100% probability) is considered defaulted and credit impaired.
Interest income is recognised by applying the effective interest rate to the amortised cost amount, i.e. gross carrying amount less ECL
allowance.
Write-off
Financial assets (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic
prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In
circumstances where the net realisable value of any collateral has been determined and there is no reasonable expectation of further
recovery, write-off may be earlier.
Renegotiated loans
A ‘renegotiated loan’ is a loan where the contractual payment terms have been renegotiated or otherwise modified because the local
group has significant concerns about the borrower’s ability to meet contractual payments when due. In general, renegotiated loans are
regarded as credit impaired upon renegotiation unless the concession is insignificant and there are no other indicators of impairment.
Moreover, loans are considered renegotiated irrespective of whether the modification is significant or not. Thus, de-recognition or
otherwise of the financial asset would not have a bearing on whether the financial asset remains classified in the respective stage
allocation. A range of forbearance strategies are employed upon the renegotiation of a loan in order to improve the management of
customer relationships, maximise collection opportunities and, if possible, avoid default, foreclosure or repossession. They include
extended payment terms, a reduction in interest or principal repayments, approved external debt management plans, debt
consolidations, the deferral of foreclosures, and other forms of loan modifications and re-ageing (re-ageing is an account action where
the customer account is reclassified as being up to date without the customer having paid the arrears in full).
The local group’s policies and practices are based on criteria which enable local management to judge whether repayment is likely to
continue. Forbearance measures typically provide a customer with terms and conditions that are more favourable than those provided
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
initially. Forbearance/renegotiation is only granted in situations where the customer has showed a willingness to repay the borrowing and
is expected to be able to meet the revised obligations.
Accordingly, loans are identified as renegotiated and classified as credit impaired when the contractual payment terms are modified due
to significant credit distress of the borrower. Renegotiated loans remain classified as credit impaired until there is sufficient evidence to
demonstrate a significant reduction in the risk of non-payment of future cash flows and retain the designation of renegotiated until
maturity or derecognition.
A loan that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different
terms, or if the terms of an existing agreement are modified such that the renegotiated loan is a substantially different financial
instrument. Any new loans that arise following derecognition events in these circumstances are considered to be POCI and will continue
to be disclosed as renegotiated loans.
Other than originated credit impaired loans, all other modified loans could be transferred out of stage 3 if they no longer exhibit any
evidence of being credit impaired and, in the case of renegotiated loans, there is sufficient evidence to demonstrate a significant
reduction in the risk of non-payment of future cash flows over the minimum observation period, and there are no other indicators of
impairment. These loans could be transferred to stage 1 or 2 based on the mechanism as described below by comparing the risk of a
default occurring at the reporting date (based on the modified contractual terms) and the risk of a default occurring at initial recognition
(based on the original, unmodified contractual terms). Any amount written off as a result of the modification of contractual terms would
not be reversed.
As suggested previously, wholesale renegotiated loans are considered credit impaired and accordingly classified as stage 3 assets unless
there are no other indicators of impairment. They can be cured out of the credit impaired status subsequently. When evidence suggests
that the renegotiated asset is no longer credit impaired, the asset is transferred out of stage 3. This is assessed on the basis of historical
and forward-looking information and an assessment of the credit risk over the expected life of the asset, including information about the
circumstances that led to the renegotiation.
Similarly, retail renegotiated loans are also classified as stage 3 assets. retail renegotiated loans cure out of the credit impaired status if
the customers meet the new payment requirements for 12 months following the date on which the loan was renegotiated.
Purchased or originated credit impaired (‘POCI’)
Financial assets that are purchased or originated at a deep discount that reflects the incurred credit losses are considered to be POCI.
This population includes the recognition of a new financial instrument following a renegotiation where concessions have been granted
for economic or contractual reasons relating to the borrower’s financial difficulty that otherwise would not have been considered. The
amount of change-in-lifetime ECL is recognised in profit or loss until the POCI is derecognised, even if the lifetime ECL are less than the
amount of ECL included in the estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different categories (other than POCI) depending on their relative increase in credit risk
since initial recognition. Financial instruments are transferred out of stage 2 if their credit risk is no longer considered to be significantly
increased since initial recognition based on the assessments described above. Except for renegotiated loans, financial instruments are
transferred out of stage 3 when they no longer exhibit any evidence of credit impairment as described above. Renegotiated loans that are
not POCI will continue to be in stage 3 until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment
of future cash flows, observed over a minimum one-year period, and there are no other indicators of impairment. For loans that are
assessed for impairment on a portfolio basis, the evidence typically comprises a history of payment performance against the original or
revised terms, as appropriate in the circumstances. For loans that are assessed for impairment on an individual basis, all available
evidence is assessed on a case-by-case basis.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and probability-weighted, and incorporate all available information
that is relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts
of future events and economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value
of money.
In general, the local group calculates ECL using three main components: PD, loss given default (‘LGD’), and exposure at default (‘EAD’).
The local group calculates the ECL for the wholesale portfolio at an instrument level, whilst the ECL for retail portfolios is calculated at
portfolio segment level.
The 12-month ECL is calculated by multiplying the 12-month PD, LGD, and EAD. Lifetime ECL is calculated on a similar basis for the
residual life of the exposure using the lifetime PD instead. The 12-month and lifetime PDs represent the probability of default occurring
over the next 12 months and the remaining maturity of the instrument, respectively. PDs are point in time (based on current conditions,
adjusted to take into account estimates of future conditions that will impact PD). The lifetime PDs are determined by projecting the 12-
month PD using a term structure.
With respect to the wholesale portfolio, given the local group’s inherent lack of history of defaults to derive coherent PDs, proxy PDs are
used as part of a Smaller Site Methodology. Proxy through-the-cycle (‘TTC’) PDs are derived from regulatory PDs determined at HSBC
Group level. These proxy TTC PDs are then converted to point-in-time (‘PiT’) PDs on the basis of the PiT correction applied in respect of
portfolios within the HSBC Group having the most similar characteristics to the local group’s wholesale portfolio, and are adjusted for a
scalar and a management overlay to reflect the economic realities of the market the local group operates in. The scalar denotes a risk
parameter that helps translate the regulatory PDs into PDs relevant to the local scenario. For the wholesale methodology, the lifetime PD
also takes into account credit migration, i.e. a customer migrating through the CRR bands over its life. In contrast, PDs for the retail
portfolio are based on internally developed statistical models using the local group’s historical model development data based on the
local group’s own experience.
The LGD represents expected losses on the EAD given the event of default, taking into account, among other attributes, the mitigating
effect of collateral value at the time it is expected to be realised and the time value of money. Expected LGD is based on estimate of loss
given default including the expected impact of future economic conditions. It incorporates the impact of discounting back from point of
default to balance sheet date using the original effective interest rate of the loan. Costs associated with obtaining/selling collateral are
reflected.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
61
The LGD used for the wholesale portfolio is driven by the loan-to-value ratio of the individual facilities, and takes into account other
assumptions, including market value haircut (which includes costs to sell), time to sell and discounting the collateral from the date of
realisation back to the date of default. Similarly, the LGD for the mortgage portfolio is also driven by the loan-to-value ratio of exposures,
taking into account similar assumptions as those in the wholesale portfolio. In contrast, the LGD for the remaining retail portfolios
(personal loans, overdrafts and credit cards) is based on the local group’s recovery history.
The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet
date to the default event together with any expected drawdowns of committed facilities.
The ECL for wholesale stage 3 exposures is determined on an individual basis using a discounted cash flow (‘DCF’) methodology. The
expected future cash flows are based on the credit risk officer’s estimates as at the reporting date, reflecting reasonable and supportable
assumptions and projections of future recoveries and expected future receipts of interest. Collateral is taken into account if it is likely that
the recovery of the outstanding amount will include realisation of collateral based on the estimated fair value of collateral at the time of
expected realisation, less costs for obtaining and selling the collateral. The cash flows are discounted at a reasonable approximation of
the original effective interest rate. For significant cases, cash flows under different scenarios are probability-weighted by reference to the
three economic scenarios applied more generally by the local group and the judgement of the credit risk officer in relation to the
likelihood of the workout strategy succeeding or receivership being required. For less significant cases, the effect of different economic
scenarios and work-out strategies is approximated and applied as an adjustment to the most likely outcome.
Period over which ECL is measured
The ECL is measured from the initial recognition of the financial asset. The maximum period considered when measuring ECL (be it 12-
month or lifetime ECL) is the maximum contractual period over which the local group is exposed to credit risk. With respect to non-
revolving credit facilities, the contractual life of the facility is considered. In contrast, in respect of revolving credit facilities, the local
group distinguishes between individually managed exposures and collectively managed exposures. For individually managed exposures,
which mostly form part of the wholesale portfolio, credit risk management actions are taken no less frequently than on an annual basis
and therefore this period is to the expected date of the next substantive credit review. The date of the substantive credit review also
represents the initial recognition of the new facility. In contrast, with respect to the remaining revolving credit facilities, the lifetime of
such exposures is defined as the point where 95% of the defaults have materialised by reference to the local group’s own historical
experience – thus, the lifetime of such assets may be longer than 12 months.
Where the financial instrument includes both a drawn and undrawn commitment and the contractual ability to demand repayment and
cancel the undrawn commitment does not serve to limit the local group’s exposure to credit risk to the contractual notice period, the
contractual period does not determine the maximum period considered. Instead, ECL is measured over the period the local group
remains exposed to credit risk that is not mitigated by credit risk management actions. This applies to retail overdrafts and credit cards,
where the period is the average time taken for stage 2 exposures to default or close as performing accounts, determined on a portfolio
basis and ranging from between three and five years. In addition, for these facilities it is not possible to identify the ECL on the loan
commitment component separately from the financial asset component. As a result, the total ECL is recognised in the loss allowance for
the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a
provision.
Forward-looking economic inputs
The recognition and measurement of ECL is highly complex and involves the use of significant judgement and estimation, including in the
formulation and incorporation of multiple forward-looking economic conditions into the ECL estimates to meet the measurement
objective of IFRS 9.
The local group will in general apply three forward-looking economic scenarios determined with reference to external forecast
distributions representative of the local group’s view of forecast economic conditions. Three scenarios are considered to capture non-
linearity across credit portfolios. If the economic environment is considered to be particularly adverse and results in a more pronounced
non-linearity impact, senior management will exercise judgement, request additional analysis, recommend overlays and/or commission
the production of additional scenarios. This approach on the whole is operationally feasible and will result in transparent outcomes. If
conditions warrant, this could result in alternative scenarios and probability weightings being applied in arriving at the ECL, as was the
case during the financial years ended 31 December 2020 and 31 December 2021, where an additional downside scenario was modelled
and used in the ECL calculation in response to the unprecedented macroeconomical impact and heightened level of uncertainty brought
about by the outbreak of Covid-19.
The three scenarios will include a central or baseline view (most likely outcome) driven by a consensus among professional industry
forecasts. The Central scenario is the basis for the financial resource planning process. Two additional outer scenarios – an ‘upside’ and a
‘downside’  – will be constructed using a ‘rules-based’ system supported by a scenario narrative that will reflect the current top and
emergent risks. The relationship between the outer scenarios and Central scenario will generally be fixed with the Central scenario being
assigned a weighting of 80% and the Upside and Downside scenarios 10% each, with the difference between the Central and outer
scenarios in terms of economic severity being informed by the spread of external forecast distributions among professional industry
forecasts. The key point to note is that the ‘outer’ scenarios will be economically plausible states of the world and will not necessarily be
as severe as scenarios used in stress testing. The period of forecast is five years for the Central scenario after which the forecasts will
revert to a more ‘through the cycle’ view.
Upside and Downside scenarios use distributional forecasts for the first two years, after which they converge to long-run trend
expectations. The economic factors include, but are not limited to, gross domestic product, unemployment, interest rates, inflation and
property prices.
As explained above, a fourth scenario was added to capture the possibility of a more severe scenario than the Downside scenario
occurring, by reference to scenarios developed by an external vendor. As a result, the assigned probability weights were recalibrated
amongst the four scenarios based on expert judgement as explained in more detail in Note 4(b)(iii) – Forward-looking information
incorporated in the ECL model.
A Forward Economic Guidance (‘FEG’) methodology has been developed to generate the economic inputs to help drive the IFRS 9 ECL
models used for credit risk. The scenarios will have probabilities attached, based on a mixture of quantitative analysis and management
judgement, with reference to an assessment of the economic risk landscape. In general, the consequences of the assessment of credit
risk and the resulting ECL outputs will be probability-weighted using the standard probability weights. This probability weighting may be
applied directly or the effect of the probability weighting determined on a periodic basis, at least annually, and then applied as an
Notes on the financial statements
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
adjustment to the outcomes resulting from the central economic forecast. The scenarios will be enriched to produce the necessary
variables that are required by the impairment models.
Presentation of ECL in statement of financial position
For financial assets that are measured at amortised cost, the ECL allowance is presented against the carrying amount of the assets on the
balance sheet, thereby reducing the carrying amount.
For financial assets measured at fair value through other comprehensive income, the ECL allowance is presented within other
comprehensive income and not against the carrying amount of the assets. The carrying amount of the asset is always the fair value.
(c)Derivative financial instruments
Derivatives are recognised initially and are subsequently re-measured at fair value though profit or loss. Fair values of exchange traded
derivatives are obtained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques,
including discounted cash flow models and option pricing models. Derivatives are classified as assets when their fair value is positive or
as liabilities when their fair value is negative.
All the local group’s derivative financial instruments are designated as held for trading as they are not designated as hedging instruments
in accordance with the requirements of IAS 39.
Accordingly, all gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognised
immediately in profit or loss. These gains and losses are reported in ‘Net trading income’, except where derivatives are managed in
conjunction with financial instruments measured at fair value through profit or loss in which case gains and losses are reported in ‘Net
income/(expense) from financial instruments of insurance operations measured at fair value through profit or loss’.
(d)Financial liabilities
The local group recognises a financial liability on its statement of financial position when it becomes a party to the contractual provisions
of the instrument. The local group’s financial liabilities are classified into two categories: i) financial liabilities which are designated at fair
value through profit or loss; and ii) financial liabilities measured at amortised cost. The criteria for designating financial liabilities at fair
value and their measurement are described in Note 3(b)(ii).
Financial liabilities measured at amortised cost, i.e. not at fair value through profit or loss, are recognised initially at fair value, being the
fair value of consideration received, net of transaction costs that are directly attributable to the acquisition or the issue of the financial
liability. These liabilities are subsequently measured at amortised cost using the effective interest rate method to amortise the difference
between proceeds received, net of directly attributable transaction costs incurred, and the redemption amount over the expected life of
the instrument.
The local group derecognises a financial liability from its statement of financial position when it is extinguished, that is the obligation
specified in the contract or arrangement is discharged, is cancelled or expires.
Financial liabilities measured at amortised cost comprise principally subordinated liabilities, deposits by banks, borrowings from group
undertaking and customer accounts.
(e)Reverse repurchase and repurchase agreements
When debt securities are sold subject to a commitment to repurchase them at a predetermined price, they remain on the statement of
financial position and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell
are not recognised on the statement of financial position and an asset is recorded in respect of the initial consideration paid. In respect of
the latter, the right to receive back the initial consideration paid is recorded in ‘Loans and advances to banks’ or ‘Loans and advances to
customers’ as appropriate. The difference between the sale and repurchase price or between the purchase and resale price is treated as
interest and recognised in ‘Net interest income’ over the life of the agreement, for loans and advances to banks and customers.
Securities lending and borrowing transactions are generally secured against cash or non-cash collateral. Securities lent or borrowed do
not normally result in derecognition or recognition on the statement of financial position. Cash collateral advanced or received is recorded
as an asset or a liability respectively.
(f)Offsetting financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position when there is a
legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle
the liability simultaneously (the offset criteria).
(g)Investments in subsidiaries
The local group classifies investments in entities which it controls as subsidiaries.
The bank’s investments in subsidiaries are stated at cost less impairment losses. Impairment losses recognised in prior periods are
reversed through profit or loss if there has been a change in the estimates used to determine the investment’s recoverable amount since
the last impairment loss was recognised.
(h)Intangible assets
Intangible assets are recognised when they are separable or arise from contractual or other legal rights, and their fair value can be
measured reliably.
Where intangible assets have a finite useful life, except for ‘Present value of in-force long-term insurance business’, they are stated at
cost less accumulated amortisation and impairment losses.
Intangible assets with finite useful lives, such as purchased computer software, are amortised, on a straight line basis, over their
estimated useful lives. Estimated useful life is the lower of legal duration and expected useful life. The estimated useful life of purchased
software ranges between 3-5 years. Costs incurred in the ongoing maintenance of software are expensed immediately as incurred.
Intangible assets are subject to impairment review if there are events or changes in circumstances that indicate that the carrying amount
may not be recoverable.
The accounting policy in respect of the PVIF long-term insurance business is reflected within Note 3(m)(iv).
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63
Deferred acquisition costs
Incremental costs that are incurred in acquiring investment management contracts and creditor protection business are deferred and
amortised as the related revenue is recognised. All deferred acquisition costs are reviewed regularly to determine if they are recoverable
from future cash flows on the associated contracts.
Deferred acquisition costs that are not deemed to be recoverable are charged to profit or loss. The test for recoverability is performed at a
portfolio level, on portfolios of relatively homogeneous contracts. Deferred acquisition costs are amortised in profit or loss on a straight
line basis over the estimated useful life of the contract.
(i)Property, plant and equipment
All property, plant and equipment is initially recorded at historical cost, including transaction costs. Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
Freehold and long leasehold properties (land and buildings) are subsequently measured at fair value based on periodic valuations by
external professionally qualified and independent valuers, less subsequent depreciation for buildings. Valuations are carried out on a
regular basis such that the carrying amount of property does not differ materially from that which would be determined using fair values
at the end of the reporting period. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying
amount of the asset, and the net amount is restated to the revalued amount of the asset.
All other property, plant and equipment is subsequently stated at historical cost less accumulated depreciation and impairment losses.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the local group and the cost of the item can be measured reliably. The
carrying amount of any part accounted for separately is derecognised when replaced. All other repairs and maintenance are charged to
profit or loss during the financial period in which they are incurred.
Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as a
revaluation reserve in shareholders’ equity. Decreases that offset previous increases of the same asset are charged to other
comprehensive income and debited against the revaluation reserve directly in equity; all other decreases are charged to profit or loss.
Land is not depreciated as it is deemed to have an indefinite life. Depreciation on all other assets recognised in profit or loss is calculated
using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as
follows:
•long leaseholds, freehold buildings and improvements: 50 years;
•short leaseholds and improvements to rented property over term of lease; and
•equipment, furniture and fittings: 3-10 years.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount (see Note 3(k)).
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.
When revalued assets are sold, the amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.
(j)Investment property
Property held for long-term rental yields or for capital appreciation or both, that is not occupied by the local group, is classified as
investment property.
Investment properties are measured initially at historical cost, including transaction costs. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent to initial recognition, investment properties are stated at fair value, representing open market value determined annually,
which reflects market conditions at the end of the reporting period.
Gains or losses arising from changes in the fair value of investment properties are included in profit or loss in the year in which they arise.
Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated
with the item will flow to the local group and the cost of the item can be measured reliably. All other repairs and maintenance costs are
charged to profit or loss during the financial period in which they are incurred.
The fair value of investment properties is based on the nature, location and condition of the specific asset. Fair values are determined by
external professionally qualified and independent valuers who apply recognised valuation techniques. Any gain or loss on the disposal of
an investment property is recognised in profit or loss. When the use of property changes such that it is reclassified as property, plant and
equipment, its fair value at the date of reclassification becomes its carrying amount for subsequent accounting.
(k)Impairment of non-financial assets
The carrying amounts of the local group’s non-financial assets are reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separate identifiable cash inflows
(cash-generating units). An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its
estimated recoverable amount. Impairment losses are recognised in profit or loss, unless the asset is carried at a revalued amount.
The recoverable amount of non-financial assets is the greater of their fair value less cost to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was
recognised.
An impairment loss on non-financial assets is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
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(l)Non-current assets (or disposal groups) held for sale
Non-current assets (or disposal groups i.e. assets and liabilities forming part of disposal groups) are classified as held for sale when their
carrying amounts will be recovered principally through sale rather than through continuing use, they are available for sale in their present
condition and their sale is highly probable. Immediately before the initial classification as held for sale, the carrying amount of the assets
and liabilities is measured in accordance with the local group’s accounting policies. Non-current assets (or disposal groups) classified as
held for sale are generally measured at the lower of their carrying amount and fair value less cost to sell except for those assets and
liabilities that are not within the scope of the measurement requirements of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued
Operations’, such as those measured in accordance with IFRS 9.
On subsequent remeasurement of a disposal group, the carrying amounts of any assets and liabilities that are not within the scope of the
measurement requirements of IFRS 5, but are included in a disposal group classified as held for sale, are remeasured under applicable
IFRSs before the fair value less costs to sell of the disposal group is determined.
(m)Insurance and investment contracts
Through its insurance subsidiary, the local group issues contracts to customers that contain insurance risk, financial risk or a combination
thereof. A contract under which the local group accepts significant insurance risk from another party by agreeing to compensate that
party on the occurrence of a specified uncertain future event, is classified as an insurance contract. An insurance contract may also
transfer financial risk, but is accounted for as an insurance contract if the insurance risk is significant.
iNet insurance premium income
Premiums for life insurance contracts are accounted for when receivable, except in unit-linked business where premiums are accounted
for when liabilities are established.
Reinsurance premiums are accounted for in the same accounting period as the premiums for the direct insurance contracts to which they
relate.
iiNet insurance claims, benefits paid and movement in liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the total cost of claims arising during the year, including claim handling costs
and any policyholder bonuses allocated in anticipation of a bonus declaration. Claims arising during the year include maturities,
surrenders and death claims. Maturity claims are recognised when due for payment. Surrenders are recognised when paid or at an earlier
date on which, following notification, the policy ceases to be included within the calculation of the related insurance liabilities. Death
claims are recognised when notified.
Reinsurance recoveries are accounted for in the same period as the related claims.
iiiLiabilities under insurance contracts
Liabilities under non-linked life insurance contracts are calculated based on actuarial principles.
Liabilities under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value which is calculated by
reference to the value of the relevant underlying funds or indices.
A liability adequacy test is carried out on insurance liabilities to ensure that the carrying amount of the liabilities is sufficient in the light of
current estimates of future cash flows. When performing the liability adequacy test, all contractual cash flows are discounted and
compared with the carrying value of the liability. When a shortfall is identified it is charged immediately to profit or loss.
ivPresent value of in-force (‘PVIF’) long-term insurance business
The value placed on insurance contracts that are classified as long-term insurance business and are in force at the reporting date is
recognised as an asset.
The asset represents the present value of the equity holders’ interest in the issuing insurance company’s profits expected to emerge from
these contracts written at the reporting date. The PVIF is determined by discounting the equity holders’ interest in future profits expected
to emerge from business currently in force using appropriate assumptions in assessing factors such as future mortality, lapse rates and
levels of expenses, and a risk discount rate that reflects the risk premium attributable to the respective contracts. The PVIF asset is
presented gross of attributable tax in the balance sheet and movements in the PVIF asset are included in ‘Movement in present value of
in-force long-term insurance business’ on a gross of tax basis.
vInvestment contracts
Investment contracts are those contracts where there is no significant insurance risk. A contract under which the local group accepts
insignificant insurance risk from another party is not classified as an insurance contract, but is accounted for as a financial liability.
Customer liabilities under unit-linked investment contracts are designated at fair value through profit or loss, and the movements in fair
value are recognised in profit or loss in ‘Net income/(expense) from financial instruments of insurance operations measured at fair value
through profit or loss’. Liabilities under unit-linked investment contracts are at least equivalent to the surrender or transfer value which is
calculated by reference to the value of the relevant underlying funds or indices.
Premiums receivable and amounts withdrawn are accounted for as increases or decreases in the liability recorded in respect of
investment contracts.
Investment management fees receivable are recognised in profit or loss over the period of the provision of the investment management
services in ‘Net fee income’.
viFuture profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for the
future discretionary benefits to policyholders. These provisions reflect the actual performance of the investment portfolio to date and
management’s expectation of the future performance of the assets backing the contracts, as well as other experience factors such as
mortality, lapses and operational efficiency, where appropriate. The benefits to policyholders may be determined by the contractual
terms, regulation, or past distribution policy.
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65
viiInvestment contracts with DPF
While investment contracts with DPF are financial instruments, they continue to be treated as insurance contracts as required by IFRS 4.
The local group therefore recognises the premiums for these contracts as revenue and recognises as an expense the resulting increase in
the carrying amount of the liability. In the case of net unrealised investment gains on these contracts, whose discretionary benefits
principally reflect the actual performance of the investment portfolio, the corresponding increase in the liabilities is recognised in either
the income statement or other comprehensive income, following the treatment of the unrealised gains on the relevant assets. In the case
of net unrealised losses, a deferred participating asset is recognised only to the extent that its recoverability is highly probable.
Movements in the liabilities arising from realised gains and losses on relevant assets are recognised in the income statement.
(n)Provisions for legal proceedings and regulatory matters
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a current legal or
constructive obligation which has arisen as a result of past events, and for which a reliable estimate can be made. A provision for
restructuring is recognised when the local group has approved a detailed and formal restructuring plan and the restructuring either has
commenced or has been announced publicly. Future operating losses are not provided for.
(o)Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, as well as contingent liabilities
related to legal proceedings or regulatory matters, are possible obligations that arise from past events whose existence will be confirmed
only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the control of the local group; or are
present obligations that have arisen from past events but are not recognised because it is not probable that settlement will require the
outflow of economic benefits, or because the amount of the obligations cannot be reliably measured. Contingent liabilities are not
recognised in the financial statements but are disclosed unless the probability of settlement is remote.
(p)Financial guarantee contracts and loan commitments
Financial guarantees are contracts that require the local group to make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Liabilities under financial guarantee contracts are recorded initially at their fair value, which is generally the fee received or present value
of the fee receivable. Financial guarantee contracts are subsequently measured at the higher of:
•the amount of the loss allowance (calculated as described in Note 3(b)(iv)); and
•the premium received on initial recognition less income recognised in accordance with the principles of IFRS 15.
Loan commitments provided by the local group are measured as the amount of the loss allowance (calculated as described in Note
3(b)(iv)).
For loan commitments and financial guarantee contracts, the loss allowance is recognised as a provision. However, for contracts that
include both a loan and an undrawn commitment and the local group cannot separately identify the expected credit losses on the
undrawn commitment component from those on the loan component, the expected credit losses on the undrawn commitment are
recognised together with the loss allowance for the loan. To the extent that the combined expected credit losses exceed the gross
carrying amount of the loan, the expected credit losses are recognised as a provision.
(q)Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except those measured at fair value through profit or loss, are
recognised in ‘Net interest income’ in profit or loss, using the effective interest method. The effective interest method is a method of
calculating the amortised cost of a financial asset or a financial liability (and groups of financial assets or financial liabilities) and of
allocating the net interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the
financial instrument or, where appropriate, a shorter period, to the gross carrying amount of the financial asset or financial liability (i.e.
amortised cost before any impairment allowance for a financial asset). When calculating the effective interest rate, the local group
estimates cash flows considering all contractual terms of the financial instrument but excluding expected credit losses. The calculation
includes transaction costs, premiums or discounts and all fees and points paid or received by the local group that are an integral part of
the effective interest rate of a financial instrument.
For POCI financial assets – assets that are credit impaired at initial recognition – the local group calculates the credit-adjusted effective
interest rate, which is calculated based on the amortised cost of the financial asset instead of its gross carrying amount and incorporates
the impact of expected credit losses in estimated future cash flows.
Interest on credit impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose
of measuring the impairment loss.
When the local group revises the estimates of future cash flows, the carrying amount of the respective financial asset or financial liability
is adjusted to reflect the new estimate discounted using the original effective interest rate. Any changes are recognised in profit or loss.
(r)Non-interest income
iNet fee income
The local group generates fee income from services provided at a fixed price over time, such as account service and card fees, or when
the local group delivers a specific transaction at a point in time, such as broking services and import/export services. With the exception
of certain fund management and performance fees, all other fees are generated at a fixed price. Fund management and performance fees
can be variable depending on the size of the customer portfolio and the local group’s performance as fund manager. Variable fees are
recognised when all uncertainties are resolved. Fee income is generally earned from short-term contracts with payment terms that do not
include a significant financing component.
The local group acts as principal in the majority of contracts with customers, with the exception of broking services. For brokerage
trades, the local group acts as agent in the transaction and recognises broking income net of fees payable to other parties in the
arrangement.
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
The local group recognises fees earned on transaction-based arrangements at a point in time when it would have fully provided the
service to the customer. Where the contract requires services to be provided over time, income is recognised on a systematic basis over
the life of the agreement.
iiDividend income
Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities,
and usually the date when shareholders have approved the dividend for unlisted equity securities.
iiiNet income from financial instruments of insurance operations measured at fair value through profit or loss
Net income from financial instruments of insurance operations measured at fair value through profit or loss includes:
•all gains and losses from changes in the fair value of financial assets and financial liabilities designated or otherwise mandatorily
measured at fair value through profit or loss, including all financial investments attributable to insurance operations and financial
liabilities under investment contracts; and
•interest income and expense and dividend income in respect of financial assets and financial liabilities designated or otherwise
mandatorily measured at fair value through profit or loss.
(s)Employee benefits
iContributions to defined contribution pension plan
The local group contributes towards the State defined contribution pension plan in accordance with local legislation in exchange for
services rendered by employees and to which it has no commitment beyond the payment of fixed contributions. The local group also
contributes towards a Unit-Linked Employee Pension Plan with no commitment beyond the payment of fixed contributions. Obligations
for contributions are recognised as an employee benefit in profit or loss in the periods during which services are rendered by employees.
iiLong-term employee benefit obligations
The local group’s liabilities for long service bonuses, retirement bonuses and benefits upon retirement on medical grounds, emanating
from obligations within the collective agreement, are not expected to be settled wholly within 12 months after the end of the period in
which the employees render the related service. They are therefore measured as the present value of expected future payments to be
made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. The
projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures
each unit separately to build the final obligation. Consideration is given to expected future salary levels, experience of employee
departures and periods of service.
The liability recognised in the balance sheet is the present value of the defined benefit obligation at the end of the reporting period. The
defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The projected unit
credit method requires the local group to attribute benefit to the current period in order to determine current service cost and to the
current and prior periods in order to determine the present value of the defined benefit obligations.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating
the terms of the related obligation.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation. This cost is reflected
in profit or loss.
Actuarial gains and losses in relation to retirement bonuses and benefits upon retirement on medical grounds, comprising
remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions, are recognised immediately
in other comprehensive income. Actuarial gains and losses in relation to the long-term bonus liability are recognised in profit or loss in
the period in which they occur. Amounts recognised in profit or loss in respect of these long-term employee benefit obligations are
presented within ‘Employee compensation and benefits’.
iiiTermination benefits
The local group recognises a liability and expense for termination benefits when the local group can no longer withdraw the offer of those
benefits. For termination benefits payable as a result of an employee’s decision to accept an offer of benefits in exchange for the
termination of employment, the time when the local group can no longer withdraw the offer of termination benefits is the earlier of:
•when the employee accepts the offer; and
•when a restriction on the local group’s ability to withdraw the offer takes effect.
For termination benefits payable as a result of the local group’s decision to terminate an employee’s employment, the local group can no
longer withdraw the offer when it has communicated to the affected employees a plan of termination meeting all of the following criteria:
•actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made;
•the plan identifies the number of employees whose employment is to be terminated, their job classifications or functions and the
expected completion date; and
•the plan establishes the termination benefits that employees will receive in sufficient detail that employees can determine the type and
amount of benefits they will receive when their employment is terminated.
ivShare-based payments
The local group enters into equity-settled share-based payment arrangements with its employees as compensation for services provided
by employees.
The cost of share-based payment arrangements with employees is measured by reference to the fair value of equity instruments on the
date they are granted and recognised as an expense on a straight-line basis over the vesting period, with a corresponding credit to
retained earnings.
Fair value is determined by using appropriate valuation models. Vesting conditions include service conditions and performance
conditions; any other features of the arrangement are non-vesting conditions. Market performance conditions and non-vesting conditions
are taken into account when estimating the fair value of the award at the date of the award. Vesting conditions, other than market
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67
performance conditions, are not taken into account in the initial estimate of the fair value at the grant date. They are taken into account
by adjusting the number of equity instruments included in the measurement of the transaction.
HSBC Holdings plc is the grantor of its equity instrument for all share awards and share options across the Group. The credit to retained
earnings over the vesting period on expensing an award represents the effective capital contribution from HSBC Holdings. To the extent
the local group will be, or has been, required to fund a share-based payment arrangement, this capital contribution is reduced and the fair
value of shares expected to be released to employees is recorded within liabilities.
(t)Foreign currencies
Transactions in foreign currencies are recorded in the functional currency at the rate of exchange prevailing on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rate of
exchange at the reporting date. Any resulting exchange differences are recognised in profit or loss. Non-monetary assets and liabilities
that are measured at historical cost in a foreign currency are translated into the functional currency using the rate of exchange at the date
of the initial transaction. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated into the functional
currency using the rate of exchange at the date the fair value was determined. Any foreign exchange component of a gain or loss on a
non-monetary item is recognised either in other comprehensive income or in profit or loss depending on where the gain or loss on the
underlying non-monetary item is recognised.
(u)Income tax
Income tax comprises current tax and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items
recognised in other comprehensive income or directly in equity, in which case it is recognised in the same statement in which the related
item appears.
Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively
enacted by the reporting date, and any adjustment to tax payable in respect of previous years. Current tax assets and liabilities are offset
when the local group intends to settle on a net basis and the legal right to offset exists.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the statement of financial
position and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be
available against which deductible temporary differences and unutilised tax losses can be utilised.
Deferred tax is calculated using the tax rates expected to apply in the periods in which the assets will be realised or the liabilities settled
based on tax rates and laws enacted, or substantively enacted, by the reporting date. Deferred tax assets and liabilities are offset when
they arise in the same tax reporting group and relate to income taxes levied by the same taxation authority, and when the local group has
a legal right to offset.
(v)Cash and cash equivalents
Cash and cash equivalents comprise cash balances, highly liquid investments and deposits with contractual maturity of three months or
less. Cash and cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of change in value. Such investments are normally those with less than three months’ maturity from the
date of acquisition. ‘Loans and advances to banks’ that are repayable on demand or have a contractual maturity of three months or less
and which form an integral part of the local group’s cash management are included as a component of cash and cash equivalents for the
purpose of the Statements of Cash Flows.
(w)Segment analysis
Measurement of segmental assets, liabilities, income and expenses is in accordance with the local group’s accounting policies.
Segmental income and expenses include transfers between segments and these transfers are conducted on arm’s length terms and
conditions. Shared costs are included in segments on the basis of the actual recharges made.
(x)Equity instruments
Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or
issue a variable number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in
equity as a deduction from the proceeds, net of tax.
4
Financial risk management
(a)Introduction
The nature of the local group’s core banking operations implies that financial instruments are extensively used in the course of its routine
business. The local group’s financial instruments principally include loans and advances to banks, loans and advances to customers,
securities and amounts due to banks and customers.
The local group is exposed to a mixed blend of risks and hence operates a risk management strategy with the objective of controlling and
minimising their impact on the local group’s financial performance and position.
All of the local group’s activities involve to varying degrees, the analysis, evaluation, acceptance and management of risks or
combination of risks.
An established risk governance framework and ownership structure ensures oversight of and accountability for the effective
management of risk. The local group’s risk management framework fosters the continuous monitoring of the risk environment and an
integrated evaluation of risks and their interactions.
The local group’s risk management framework is designed to provide appropriate risk monitoring and assessment. The bank’s Risk
Committee focuses on risk governance and provides a forward-looking view of risks and their mitigation.
The Risk Committee is a committee of the Board and has responsibility for oversight and advice to the Board on, inter alia, the bank’s risk
appetite, tolerance and strategy, systems of risk management, internal control and compliance.
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HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
The Risk Committee maintains and develops a supportive culture in relation to the management of risk, appropriately embedded by
executive management through procedures, training and leadership actions.
In carrying out its responsibilities, the Risk Committee is closely supported by the Chief Risk Officer, the Chief Financial Officer, the Head
of Internal Audit and the Head of Compliance, together with other business functions on risks within their respective areas of
responsibility.
The most important types of risk include financial risk, which comprises credit risk, market risk and liquidity risk. These categories of risk
in relation to life insurance business are described in Note 4(f).
(b)Credit risk excluding Insurance credit risk which is reported under Note 4(f)
iCredit risk management
Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises principally from
lending, trade finance and treasury business, mainly through the holdings of debt securities, but also from off-balance sheet products
such as guarantees. The local group has standards, policies and procedures dedicated to control and monitor the risk arising from all
such activities.
Within the overall framework of the local group policy, the local group has an established risk management process encompassing credit
approvals, the control of exposures, credit policy direction to business units and the monitoring and reporting of exposures both on an
individual and a portfolio basis which includes the management of adverse trends. Management is responsible for the quality of its credit
portfolios and follows a credit process involving delegated approval authorities and credit procedures, the objective of which is to build
and maintain risk assets of high quality. Regular reviews are undertaken to assess and evaluate levels of risk concentrations by market
sector and product.
The bank’s credit risk rating systems and processes differentiate exposures in order to highlight those with greater risk factors and higher
potential severity of loss. In the case of individually significant accounts, risk ratings are reviewed regularly and any amendments are
implemented promptly.
The principal objectives of the local group’s credit risk management are:
•to maintain a strong culture of responsible lending and a robust risk policy and control framework;
•to both partner and challenge global businesses in defining, implementing, and continually re-evaluating risk appetite under actual and
scenario conditions; and
•to ensure there is independent, expert scrutiny of credit risks.
Within the bank, the credit risk function’s responsibilities include:
•formulating credit policy;
•guiding business on appetite for credit risk exposure to specified market sectors, activities and banking products and controlling
exposures to certain higher-risk sectors;
•undertaking an independent review and objective assessment of risk and exposures over designated limits, prior to the facilities being
committed to customers or transactions being undertaken;
•monitoring the performance and management of portfolios;
•controlling exposure to sovereign entities, banks and other financial institutions, as well as debt securities;
•setting policy on large credit exposures, ensuring that concentrations of exposure by counterparty, sector or geography do not
become excessive in relation to the capital base, and remain within internal and regulatory limits;
•maintaining and developing the risk rating framework and systems and overseeing risk rating system governance for both wholesale
and retail businesses; and
•reporting on retail portfolio performance, high risk portfolios, risk concentrations, large impaired accounts, impairment allowances and
stress testing results.
Special attention is paid to problem exposures in order to accelerate remedial action. The local group uses specialist units to provide
customers with support in order to help them avoid default wherever possible.
Internal approval limits are in place depending on the magnitude and particular risks attached to the respective facility. The bank has set
limits of authority for the business and the credit risk functions, ensuring segregation of duties so as to maintain independence during the
approval process. The local group structures the level of credit risk it undertakes by placing limits in relation to products, counterparties,
sectors and other parameters. Certain actual exposures against limits are monitored at end of day and on a real-time basis too.
All figures and tables relating to credit risk presented in this note exclude the local group’s exposure to insurance credit risk, which is
disclosed separately in Note 4(f), as well as the credit risk relating to the asset management subsidiary, which is deemed to be
insignificant. Accordingly, other than for insurance credit risk, the local group’s credit risk is deemed to correspond to that of the bank.
The financial years ended 31 December 2021 and 2020 have been characterised by unprecedented economic conditions as a result of
Covid-19, which have continued to impact a significant number of the local group's customers’ business models, income levels or cash
flow generation. Whereas economic growth has been registered during 2021 subsequent to the significant 2020 adverse impacts,
economic uncertainty still prevails taking cognisance of the forecast conditions as at 31 December 2021.
The local group has continued to support its customers and to apply adapted credit risk operational processes accordingly. During the
years ended 31 December 2021 and 2020, the bank granted moratoria on capital and/or interest payments and originated new loans to
provide relief to customers experiencing liquidity pressures as a result of the prevailing macroeconomic scenario.
From a risk perspective, the pandemic has continued to affect changes in the behaviour of retail and wholesale customers. This has
impacted the performance of the bank’s expected credit loss models, requiring enhanced monitoring of model outputs and use of
alternative mechanisms or controls.
Subsequent to the outbreak of Covid-19, the bank had adapted its credit risk management processes for the purposes of identifying
deterioration in credit risk within its portfolios as early as possible and estimating expected credit loss allowances using the best possible
judgement. In this respect, the bank increased the frequency and depth of monitoring activities on its loan portfolios. In relation to those
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69
customers that requested moratoria, the bank carries out periodic assessments to determine whether the current Covid-19 induced shock
may transform into long-term financial difficulties, thereby potentially requiring a downgrade of individual exposures or exposures
sharing similar credit risk characteristics to stage 2 or stage 3 to reflect the change in the level of credit risk as appropriate.
Stress tests and other sectorial reviews are periodically performed to identify customers or groups of customers who are experiencing, or
are likely to experience, financial difficulty as a result of Covid-19. These sectorial reviews continued to be monitored on a regular basis
during 2021 in order to assess ongoing developments in respect of Covid-19, such as the emergence of new waves of infections or virus
strains, the status and efficacy of vaccination programmes, together with the unwinding of government support schemes and regulatory
relief measures.
With respect to wholesale exposures, during 2021, the bank continued to assess and individually rate on an ongoing basis those
borrowers deemed mostly impacted by the pandemic through individual, ad-hoc credit assessments, on the basis of recently obtained
management information, including forecasts. Exposures deemed mostly impacted and in respect of which a SICR has been observed,
are assigned a ‘Watch or Worry’ status, requiring closer and more frequent monitoring on a monthly or quarterly basis (depending on the
extent of credit risk deterioration).
During 2021, more information became available in respect of the impact of Covid-19 on specific borrowers and industry sectors,
enabling management to assess in an enhanced manner borrower-specific credit risk levels and identify SICR or unlikeliness to pay
(‘UTP’) events. The bank continued to monitor closely wholesale exposures previously assigned a ‘Watch or Worry’ status  to update
credit risk assessments by reference to actual financial performance and, where available, financial forecasts. Moreover, additional
borrowers were attributed ‘Watch or Worry’ status during 2021 as financial difficulties became more evident by reference to updated
financial information.
In relation to retail exposures, the bank resorts more to portfolio measures or reviews in respect of groups of exposures exhibiting shared
risk characteristics.
Where appropriate, the local group also enhanced its credit risk mitigation techniques in order to manage the heightened level of credit
risk by requesting additional collateral in respect of specific exposures.
The unprecedented nature of the pandemic induced an elevated level of uncertainty in respect of economic outlook. Whilst economic
consensus forecasts have stabilised in recent months and monthly modifications to forecasts have become narrower, the extent to which
these forecasts accurately reflect the effects of new virus strains, the distribution and efficacy of vaccines (and vaccine boosters) and
eventual business recovery remains uncertain.
The level of local macroeconomic uncertainty increased subsequent to the grey-listing of Malta by the Financial Action Task Force
(‘FATF’) in June 2021. The estimated economic impact of grey-listing remains uncertain since this is highly dependent on the speed at
which Malta exits grey-listing, the effectiveness of national efforts to address the findings, and the response of foreign investors.
These factors necessitate more regular monitoring and rigorous evaluation of forecast economic conditions, together with heightened
expert judgement, in order to best determine the range of possible economic outcomes used for the purposes of estimating ECL. Further
information in respect of macroeconomic forecasts reflected within the ECL calculations is provided in Note 4(b)(iii) within the section
entitled ‘Forward-looking information incorporated in the ECL model’.
Maximum exposure to credit risk
The following table presents the maximum exposure to credit risk from balance sheet and off-balance sheet financial instruments, before
taking account of any collateral held or other credit enhancements. For financial assets recognised on the balance sheet, the maximum
exposure to credit risk equals their carrying amount; for financial guarantees granted, it is the maximum amount that the bank would
have to pay if the guarantees were called upon. For loan commitments and other credit-related commitments that are irrevocable over
the life of the respective facilities, it is generally the full amount of the committed facilities.
2021
2020
€000
€000
Balances with Central Bank of Malta and Treasury Bills
1,469,626
967,789
Items in course of collection from other banks
4,453
4,959
Loans and advances to banks
613,062
583,439
Loans and advances to customers
3,196,725
3,264,664
Debt instruments measured at fair value through other comprehensive income
845,700
877,452
Accrued income and other assets
17,655
21,662
Off-balance sheet:
–  financial guarantee and similar contracts
140,359
150,022
–  loan and other credit related commitments
967,739
1,071,319
At 31 December
7,255,319
6,941,306
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
The bank’s exposure to credit risk mainly arises from its lending activities. In this respect, all lending activities are classified under either
wholesale or personal lending.
Wholesale lending includes both small business owners served through Personal Banking as well as the financing of corporate and                   
non-bank financial institutions both from a working capital perspective and investing primarily in income producing assets and, to a
lesser extent, construction and development of the same. The business focuses mainly on traditional core asset classes such as retail,
offices, light industrial and residential building projects. In the table below, these wholesale lending exposures are presented as
exposures to corporate and commercial entities as well as exposures to non-bank financial institutions. Non-bank financial institutions
are mainly financial corporations other than banks and entities within groups of companies that are mainly engaged in financial and
insurance activities. Corporate and commercial entities are wholesale entities that have activities other than finance related. 
The bank provides a broad range of secured and unsecured personal lending products to meet customer needs. Personal lending
includes advances to customers for asset purchases such as residential property where the loans are secured by the assets acquired. The
bank also offers loans secured on existing assets, such as first charges on residential property, and unsecured lending products such as
overdrafts, credit cards and car loans.
Notes on the financial statements
70
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
The following disclosure presents the gross carrying/nominal amount of financial instruments measured at amortised cost to which the
impairment requirements in IFRS 9 are applied and the associated allowance for ECL, as well as the fair value of debt instruments
measured at FVOCI and the associated allowance for ECL.
At 31 December 2021
At 31 December 2020
Gross carrying/
nominal amount
Allowance for
ECL
Gross carrying/
nominal amount
Allowance for   
ECL
€000
€000
€000
€000
Loans and advances to customers at amortised cost
3,254,757
(58,032)
3,324,573
(59,909)
–  personal
2,290,194
(24,470)
2,294,363
(23,386)
–  corporate and commercial
839,153
(29,835)
835,494
(32,153)
–  non-bank financial institutions
125,410
(3,727)
194,716
(4,370)
Loans and advances to banks at amortised cost
613,064
(2)
583,447
(8)
Other financial assets measured at amortised cost
1,273,258
(9,696)
747,951
(9,843)
–  balances at central banks
1,241,462
(8)
711,497
(10)
–  items in the course of collection from other banks
4,453
—
4,959
—
–  accrued income and other assets
27,343
(9,688)
31,495
(9,833)
Total gross carrying amount on balance sheet
5,141,079
(67,730)
4,655,971
(69,760)
Loan and other credit-related commitments
967,739
(1,173)
1,071,319
(1,693)
–  personal
406,384
(15)
459,898
(31)
–  corporate and commercial (including non-bank financial institutions)
552,613
(1,158)
591,421
(1,662)
–  banks
8,742
—
20,000
—
Financial guarantee and similar contracts
140,359
(597)
150,022
(727)
–  personal
5,712
(31)
5,579
(31)
–  corporate and commercial (including non-bank financial institutions)
134,647
(566)
144,443
(696)
Total nominal amount off balance sheet
1,108,098
(1,770)
1,221,341
(2,420)
Total
6,249,177
(69,500)
5,877,312
(72,180)
Fair value
Allowance for
ECL
Fair value
Allowance for     
ECL
€000
€000
€000
€000
Debt instruments measured at fair value through other comprehensive income
845,700
(69)
877,452
(340)
Treasury Bills measured at fair value through other comprehensive income
228,172
(7)
256,302
(30)
Total
1,073,872
(76)
1,133,754
(370)
The following table contains an analysis of the maximum credit risk exposure from financial assets subject to credit risk but not subject to
impairment (i.e. FVTPL):
2021
2020
€000
€000
Held for trading derivatives
4,640
6,574
iiConcentration of credit risk exposure
Concentrations of credit risk arise when a number of counterparties or exposures have comparable economic characteristics, or such
counterparties are engaged in similar activities, or operate in the same geographical areas or industry sectors, so that their collective
ability to meet contractual obligations is uniformly affected by changes in economic, political or other conditions. The bank uses a
number of controls and measures to minimise undue concentration of exposure in its portfolios across industry, country and customer
groups. These include portfolio and counterparty limits, approval and review controls, and stress testing.
Financial investments measured at FVOCI
The bank’s holdings of debt securities are spread across a range of issuers in both 2021 and 2020, with the exception of 62% (2020: 49%)
invested in local government debt securities.
Derivatives
The bank participates in transactions exposing it to counterparty credit risk. Counterparty credit risk is the risk of financial loss if the
counterparty to a transaction defaults before completing the satisfactory settlement of the transaction, which varies in value by reference
to a market factor such as interest rate or exchange rate. It arises principally from over-the-counter (‘OTC’) derivatives.
Derivative assets were €4,640,000 at 31 December 2021 (2020: €6,574,000), with €2,372,000 (2020: €597,000) transacted with HSBC
Group and €2,268,000 (2020: €5,977,000) transacted with other commercial counterparties.
Loans and advances to banks and Items in course of collection from other banks
Loans and advances to banks are mostly held with HSBC Group entities, whereas Items in course of collection from other banks
represent amounts receivable from other local banks settled on a daily basis.
Settlement risk arises in any situation where a payment in cash, securities or equities is made with the expectation of a corresponding
receipt of cash, securities or equities. Daily settlement limits are established for counterparties to cover the aggregate amount of
transactions with each counterparty on any single day.
The bank substantially mitigates settlement risk on many transactions, particularly those involving securities and equities, by settling
through assured payment systems, or on a delivery-versus-payment basis.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
71
Loans and advances to customers
The following table analyses the bank’s loans and advances to customers including credit impaired loans by business segment.
Gross loans and
advances to
customers
Gross loans by
business
segment as a %
of total gross
loans
Credit impaired
loans and
advances to
customers
Credit impaired
loans by
business
segment as a %
of sector gross
loans
€000
%
€000
%
At 31 December 2021
Personal lending
–  first lien residential mortgages
2,087,153
64.1
75,272
3.6
–  other personal lending
203,041
6.2
13,962
6.9
Wholesale lending
–  commercial real estate and other property related
221,084
6.8
43,000
19.4
–  state-owned entities
286,875
8.8
—
—
–  other commercial
456,604
14.1
36,177
7.9
Total
3,254,757
100
168,411
5.2
At 31 December 2020
Personal lending
–  first lien residential mortgages
2,069,901
62.3
69,707
3.4
–  other personal lending
224,462
6.8
13,907
6.2
Wholesale lending
–  commercial real estate and other property related
226,943
6.8
27,799
12.2
–  state-owned entities
270,077
8.1
—
—
–  other commercial
533,190
16.0
19,583
3.7
Total
3,324,573
100
130,996
3.9
The amount of gross loans and advances to customers of the bank stood at €3,254,757,000 at 31 December 2021 (2020:
€3,324,573,000). As at 31 December 2021, there were no loans and advances payable to the bank by any of its subsidiaries (2020: Nil).
A detailed sectorial analysis of the bank’s on-balance sheet loans and advances to customers, before and after taking into account
collateral held or other credit enhancements, is presented in the table on the following page.
With respect to collateral values used within the table, in the case of exposures secured by mortgages on immovable property, the value
is limited to 70% of the market value of the property in case of residential property and 50% of the market value of the property in the
case of commercial property.
Collateral included under ‘Securities/Cash’ comprise euro and foreign denominated cash and sovereign debt securities. Euro
denominated cash is included at its full value, whilst foreign denominated cash is included at 90% of the cash value. A 20-50% haircut is
applied to the value of sovereign debt securities, depending on the external credit rating assigned to such collateral. Moreover, the bank
holds the following collateral, included in the table as ‘Other eligible collateral’:
•guarantees from the Government of Malta to cover exposures of public entities and corporations, included at 100% of the guarantee
amount;
•guarantees from the Housing Authority to cover mortgage lending as part of social housing schemes, included at 100% of the
guarantee amount;
•prime bank guarantees, included at 100% of the guarantee amount; and
•saving and endowment policies included at 100% of the surrender value, and pension plans included at 50% of the net asset value.
Guarantees from the Government of Malta to cover loan originations in terms of the Malta Development Bank (‘MDB’) Covid-19
Guarantee Scheme (‘CGS’) are not included with collateral in the table on the following page.
Notes on the financial statements
72
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Gross on-
balance sheet
exposure
Collateral
Net
maximum
exposure
Residential
property
Commercial
property
Securities/
cash
Other
€000
€000
€000
€000
€000
€000
As at 31 December 2021
Electricity, gas, water supply and waste
management
108,674
131
1,406
1,735
51,100
54,302
Accommodation and food service
92,554
1,577
35,096
108
10
55,763
Construction, real estate activities
134,828
8,448
86,651
1,744
120
37,865
Wholesale and retail trade and repairs
211,075
4,382
38,225
4,165
77,544
86,759
Services
373,509
3,262
91,601
10,105
157,230
111,311
Manufacturing, agriculture and fishing
54,748
5,214
9,187
501
733
39,113
Households and individuals
2,279,369
2,130,321
476
12,053
5,260
131,259
3,254,757
2,153,335
262,642
30,411
291,997
516,372
As at 31 December 2020
Electricity, gas, water supply and waste
management
117,200
233
1,765
1,735
53,150
60,317
Accommodation and food service
86,907
2,298
42,870
115
15
41,609
Construction, real estate activities
150,533
13,885
73,835
2,250
121
60,442
Wholesale and retail trade and repairs
131,004
6,527
42,653
4,091
802
76,931
Services
514,219
9,078
132,564
13,903
230,038
128,636
Manufacturing, agriculture and fishing
50,536
2,892
19,582
516
347
27,199
Households and individuals
2,274,174
2,077,393
667
13,540
6,009
176,565
3,324,573
2,112,306
313,936
36,150
290,482
571,699
iiiCredit quality of financial assets
As outlined previously, the bank’s credit risk rating processes are designed to highlight exposures which require closer management
attention because of their greater probability of default and potential loss. The credit quality of unimpaired loans is assessed by reference
to the bank’s standard credit rating system.
The five credit quality classifications below describe the credit quality of the bank’s lending, debt securities and derivatives.
Quality classification definitions
‘Strong’ exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or low levels of expected
loss. Personal accounts operate within product parameters.
‘Good’ exposures demonstrate good capacity to meet financial commitments, with low to moderate default risk. Personal accounts typically show only
short periods of delinquency. For residential mortgages losses are expected to be minimal following the adoption of recovery processes.
‘Satisfactory’ exposures require closer monitoring and demonstrate an average to fair capacity to meet financial commitments, with moderate default risk.
Personal accounts typically show only short periods of delinquency. For residential mortgages, losses are expected to be minor following the adoption of
recovery processes.
‘Sub-standard’ exposures require varying degrees of special attention and default risk is of greater concern. Personal portfolio segments show longer
delinquency periods of generally up to 89 days past due.
‘Credit impaired’ exposures have been assessed as impaired, where the borrower is either 90 or more days past due or is facing significant financial
difficulty such that a detrimental impact on the future estimated cash flows has occurred.
As illustrated in the table below, these classifications each encompass a range of more granular, internal credit rating grades assigned to
wholesale and personal lending business, as well as external rating grades attributed by external agencies to debt securities. The quality
classification for loans and advances to banks is also assessed using the same ratings as for wholesale lending.
There is no direct correlation between the internal and external ratings at granular level, except to the extent each falls within a single
quality classification.
Sovereign debt
securities and bills
– External credit
rating
Other debt
securities and bills
– External credit
rating
Wholesale
lending
Personal lending – First lien
residential mortgages
Personal lending – Other
Quality classification
Strong
BBB and above
A- and above
CRR1 to CRR2
Not past due with LTV lower
than 45%
Not past due facilities with no
delinquency in the last 12
months
Good
BBB- to BB
BBB+ to BBB-
CRR3
Not past due with LTV
between 45% and 85%
Not past due facilities with less
than 30 days delinquency in the
last 12 months
Satisfactory
BB- to B and
unrated
BB+ to B and
unrated
CRR4 to CRR5
Not past due with LTV
between 85% and 100%
Not past due facilities with 30
days delinquency or more in the
last 12 months
Sub-standard
B- to C
B- to C
CRR6 to CRR8
Past due
Past due
Credit impaired
Default
Default
CRR9 to CRR10
Past due by 90 days or more,
forborne, under legal action or
connected to other facilities
with credit impaired status
Past due by 90 days or more,
forborne, under legal action or
connected to other facilities
with credit impaired status
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
73
Distribution of financial instruments by credit quality
As at 31 December 2021
Gross carrying/nominal amount
Allowance for
ECL
Net
Strong
Good
Satisfactory
Sub-
standard
Credit impaired
Total
€000
€000
€000
€000
€000
€000
€000
€000
In scope for IFRS 9
impairments
Loans and advances to
customers held at amortised
cost:
1,044,946
1,285,585
547,430
208,385
168,411
3,254,757
(58,032)
3,196,725
–  personal
762,593
1,282,772
115,147
40,448
89,234
2,290,194
(24,470)
2,265,724
–  corporate and commercial
282,339
374
360,458
121,277
74,705
839,153
(29,835)
809,318
–  non-bank financial
institutions
14
2,439
71,825
46,660
4,472
125,410
(3,727)
121,683
Loans and advances to banks
held at amortised cost
613,064
—
—
—
—
613,064
(2)
613,062
Other financial assets held at
amortised cost:
Balances at central banks
1,241,462
—
—
—
—
1,241,462
(8)
1,241,454
Items in the course of
collection from other banks
4,453
—
—
—
—
4,453
—
4,453
Other assets
6,160
2,438
2,766
1,148
14,831
27,343
(9,688)
17,655
–  endorsements
and acceptances
—
—
842
—
—
842
—
842
–  accrued income
6,160
2,438
1,924
1,148
14,831
26,501
(9,688)
16,813
Total gross carrying
amount on balance sheet
2,910,085
1,288,023
550,196
209,533
183,242
5,141,079
(67,730)
5,073,349
Percentage of total credit
quality
56.6%
25.0%
10.7%
4.1%
3.6%
100%
Loan and other credit-related
commitments
486,619
109,327
302,620
59,702
9,471
967,739
(1,173)
966,566
Financial guarantees and
similar contracts
19,731
2,286
101,612
14,996
1,734
140,359
(597)
139,762
Total nominal amount off
balance sheet
506,350
111,613
404,232
74,698
11,205
1,108,098
(1,770)
1,106,328
At 31 December 2021
3,416,435
1,399,636
954,428
284,231
194,447
6,249,177
(69,500)
6,179,677
Fair value
Strong
Good
Satisfactory
Sub-
standard
Credit
impaired
Total
Allowance for
ECL
€000
€000
€000
€000
€000
€000
€000
Debt instruments measured at fair value
through other comprehensive income
845,700
—
—
—
—
845,700
(69)
Treasury Bills measured at fair value through
other comprehensive income
228,172
—
—
—
—
228,172
(7)
At 31 December 2021
1,073,872
—
—
—
—
1,073,872
(76)
Notes on the financial statements
74
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Distribution of financial instruments by credit quality (continued)
As at 31 December 2020
Gross carrying/nominal amount
Allowance for
ECL
Net
Strong
Good
Satisfactory
Sub-
standard
Credit impaired
Total
€000
€000
€000
€000
€000
€000
€000
€000
In scope for IFRS 9 impairments
Loans and advances to customers
held at amortised cost:
951,506
1,289,538
727,317
225,216
130,996
3,324,573
(59,909)
3,264,664
–  personal
667,702
1,286,198
209,222
47,627
83,614
2,294,363
(23,386)
2,270,977
–  corporate and commercial
283,804
120
351,587
153,060
46,923
835,494
(32,153)
803,341
–  non-bank financial institutions
—
3,220
166,508
24,529
459
194,716
(4,370)
190,346
Loans and advances to banks held
at amortised cost
583,447
—
—
—
—
583,447
(8)
583,439
Other financial assets held at
amortised cost:
Balances at central banks
711,497
—
—
—
—
711,497
(10)
711,487
Items in the course of collection
from other banks
4,959
—
—
—
—
4,959
—
4,959
Other assets
7,607
2,800
3,336
3,147
14,605
31,495
(9,833)
21,662
–  endorsements and acceptances
—
—
851
270
—
1,121
(7)
1,114
–  accrued income
7,607
2,800
2,485
2,877
14,605
30,374
(9,826)
20,548
Total gross carrying amount on
balance sheet
2,259,016
1,292,338
730,653
228,363
145,601
4,655,971
(69,760)
4,586,211
Percentage of total credit quality
48.4%
27.8%
15.7%
4.9%
3.2%
100%
Loan and other credit-related
commitments
494,823
142,784
377,579
54,499
1,634
1,071,319
(1,693)
1,069,626
Financial guarantees and similar
contracts
15,635
7,302
111,239
14,604
1,242
150,022
(727)
149,295
Total nominal amount off balance
sheet
510,458
150,086
488,818
69,103
2,876
1,221,341
(2,420)
1,218,921
At 31 December 2020
2,769,474
1,442,424
1,219,471
297,466
148,477
5,877,312
(72,180)
5,805,132
Fair value
Strong
Good
Satisfactory
Sub-
standard
Credit impaired
Total
Allowance for
ECL
€000
€000
€000
€000
€000
€000
€000
Debt instruments measured at fair value through
other comprehensive income
877,452
—
—
—
—
877,452
(340)
Treasury Bills measured at fair value through other
comprehensive income
256,302
—
—
—
—
256,302
(30)
At 31 December 2020
1,133,754
—
—
—
—
1,133,754
(370)
Summary of credit quality of loans and advances to customers
The following table provides an overview of the bank’s credit risk by stage and business segment, and the associated ECL coverage. The
financial assets recorded in each stage have the following characteristics:
•Stage 1: Unimpaired and without significant increase in credit risk on which a 12-month allowance for ECL is recognised.
•Stage 2: A significant increase in credit risk has been experienced since initial recognition on which a lifetime ECL is recognised.
•Stage 3: Objective evidence of impairment, and are therefore considered to be in default or otherwise credit impaired, on which a
lifetime ECL is recognised.
The bank determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective evidence, primarily
whether:
•contractual payments of either principal or interest are past due by 90 days or more;
•there are other indications that the borrower is unlikely to pay, such as when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower’s financial condition; and
•the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due. Therefore the
definitions of credit impaired and default are aligned as far as possible so that stage 3 represents all loans that are considered defaulted
or otherwise credit impaired.
Impaired loans and advances are those that are classified as CRR 9 or CRR 10. These grades are assigned when the bank considers that
either the customer is unlikely to pay its credit obligations in full, without recourse to security, or when the customer is 90 days past due
or more on any material credit obligation to the bank.
Impaired loans and advances also include renegotiated loans and advances that have been subject to a change in contractual cash flows
as a result of a concession which the bank would not otherwise consider, and where it is probable that without the concession the
borrower would be unable to meet the contractual payment obligations in full, unless the concession is insignificant and there are no 
other indicators of impairment. Renegotiated loans remain classified as impaired until there is sufficient evidence to demonstrate a
significant reduction in the risk of non-payment of future cash flows, and there are no other indicators of impairment.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
75
As referred to previously, the Covid-19 pandemic and the consequential economic conditions have exacerbated the level of uncertainty,
particularly with respect to the identification of customers that would have experienced a SICR or that exhibit unlikeliness to pay (‘UTP’)
characteristics.
This is also attributable to limitations in credit information available on customers, particularly where these customers were granted a
general payment moratorium, as well as the potential delay in default emergence as a result of the application of other government
support schemes which might veil longer term financial difficulties.
In respect of retail portfolios, the timely identification of SICR or UTP events is usually linked to credit deterioration indicators such as
delinquency status. The granting of general payment moratoria to support borrowers’ short-term liquidity needs might conceal the
potential impact that the pandemic may have on borrowers’ financial conditions.
The bank utilises segmentation techniques for the purposes of identifying indicators of SICR within both wholesale and retail portfolios.
As disclosed in further detail in Note 4(b)(iii) within the section entitled ‘Renegotiated loans and advances to customers and forbearance’,
the bank performs periodic assessments to determine whether the current short-term economic shock as a result of the pandemic may
transform into long-term borrower financial difficulties, thereby potentially requiring a downgrade of individual exposures or exposures
sharing similar credit risk characteristics to stage 2 or stage 3 to reflect the level of change in credit risk as appropriate.
In respect of its retail mortgage portfolio, the bank utilises a mechanism designed to estimate the impact of the delayed emergence of
defaults resulting from the extension of public moratoria by reference to factors such as employment status of the borrower, the sector
within which the borrower is employed, as well as reductions in the base salaries of borrowers. This mechanism was enhanced during
the financial year ended 31 December 2021 to capture the impact of the delayed emergence of defaults resulting from the government
support measures which were applicable during the year under review. Further information in respect of macroeconomic forecasts
reflected within the ECL calculations is provided in Note 4(b)(iii) within the section entitled ‘Renegotiated loans and advances to
customers and forbearance’.
In respect of individually significant loans within the wholesale portfolio, the bank assesses and individually rates those borrowers that
requested payment deferrals/moratoria as well as those individually significant borrowers within wholesale sub-portfolios or groups of
exposures with shared credit risk characteristics, which are deemed mostly impacted by the pandemic. These exposures are assessed
periodically for SICR and UTP events through individual credit risk assessments, on the basis of recently obtained management
information, including forecasts. Exposures in respect of which SICR has been observed are attributed higher ECL, and are assigned a
‘Watch or Worry’ status, requiring closer and more frequent monitoring on a monthly or quarterly basis (depending on the extent of
credit risk deterioration) to facilitate timely identification of further deterioration in financial condition.
During 2021, more information became available in respect of the impact of Covid-19 on specific borrowers and industry sectors, both in
terms of actual financial performance and revised forecasts reflecting more accurate impacts of the pandemic when compared to prior
year estimates. Credit risk assessments in respect of individually significant loans within the wholesale portfolio were updated during the
financial year ended 31 December 2021 based on updated financial information, enabling management to better identify SICR or UTP
events and resulting in further migrations from stage 1 or 2 to stage 3, as per information presented in Note 4(b)(iii) within the section
entitled ‘Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers, including loan
and other credit-related commitments, acceptances, accrued income and financial guarantees and similar contracts’.
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by business segment
Gross carrying/nominal amount
Allowance for ECL
ECL coverage %
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
€000
€000
€000
€000
€000
€000
€000
€000
%
%
%
%
Loans and advances
to customers at
amortised cost
2,830,787
255,559
168,411
3,254,757
(14,740)
(15,615)
(27,677)
(58,032)
0.5
6.1
16.4
1.8
–  personal
2,151,181
49,779
89,234
2,290,194
(11,933)
(4,386)
(8,151)
(24,470)
0.6
8.8
9.1
1.1
–  corporate and
commercial
641,574
122,874
74,705
839,153
(2,466)
(8,129)
(19,240)
(29,835)
0.4
6.6
25.8
3.6
–  non-bank financial
institutions
38,032
82,906
4,472
125,410
(341)
(3,100)
(286)
(3,727)
0.9
3.7
6.4
3.0
Loans and advances
to banks at
amortised cost
613,064
—
—
613,064
(2)
—
—
(2)
—
—
—
—
Other financial
assets measured at
amortised cost
1,257,175
1,252
14,831
1,273,258
(8)
—
(9,688)
(9,696)
—
—
65.3
0.8
Loan and other
credit-related
commitments
876,295
81,973
9,471
967,739
(455)
(374)
(344)
(1,173)
0.1
0.5
3.6
0.1
–  personal
397,997
8,268
119
406,384
(15)
—
—
(15)
—
—
—
—
–  corporate and
commercial
(including non-
bank financial
institutions)
469,556
73,705
9,352
552,613
(440)
(374)
(344)
(1,158)
0.1
0.5
3.7
0.2
–  banks
8,742
—
—
8,742
—
—
—
—
—
—
—
—
Financial guarantee
and similar contracts
111,606
27,019
1,734
140,359
(187)
(119)
(291)
(597)
0.2
0.4
16.8
0.4
–  personal
5,702
10
—
5,712
(31)
—
—
(31)
0.5
—
—
0.5
–  corporate and
commercial
(including non-
bank financial
institutions)
105,904
27,009
1,734
134,647
(156)
(119)
(291)
(566)
0.1
0.4
16.8
0.4
At 31 December
2021
5,688,927
365,803
194,447
6,249,177
(15,392)
(16,108)
(38,000)
(69,500)
0.3
4.4
19.5
1.1
Notes on the financial statements
76
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 30
days past due (‘DPD’) and are transferred from stage 1 to stage 2. The following disclosure presents the ageing of stage 2 financial
assets. It distinguishes those assets that are classified as stage 2 when they are less than 30 days past due (including up to date
exposures) from those that are classified as stage 2 due to ageing and are 30 DPD or more (30 and >DPD). Past due financial instruments
are those loans where customers have failed to make payments in accordance with the contractual terms of their facilities.
Stage 2 days past due analysis at 31 December 2021
Gross exposure
Allowance for ECL
ECL coverage %
Stage 2
Of which:
Of which:
Stage 2
Of which:
Of which:
Stage 2
Of which:
Of which:
<30 DPD
>30 DPD
<30 DPD
>30 DPD
<30 DPD
>30 DPD
€000
€000
€000
€000
€000
€000
%
%
%
Loans and advances to customers at amortised
cost:
255,559
246,339
9,220
(15,615)
(14,837)
(778)
6.1
6.0
8.4
–  personal
49,779
41,169
8,610
(4,386)
(3,614)
(772)
8.8
8.8
9.0
–  corporate and commercial
122,874
122,264
610
(8,129)
(8,123)
(6)
6.6
6.6
1.0
–  non-bank financial institutions
82,906
82,906
—
(3,100)
(3,100)
—
3.7
3.7
—
Other financial assets measured at amortised
cost
1,252
1,099
153
—
—
—
—
—
—
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by business
segment (continued)
Gross carrying/nominal amount
Allowance for ECL
ECL coverage %
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
€000
€000
€000
€000
€000
€000
€000
€000
%
%
%
%
Loans and advances to
customers at amortised
cost
2,863,490
330,087
130,996
3,324,573
(13,600)
(19,136)
(27,173)
(59,909)
0.5
5.8
20.7
1.8
–  personal
2,155,675
55,074
83,614
2,294,363
(9,617)
(5,421)
(8,348)
(23,386)
0.4
9.8
10.0
1.0
–  corporate and
commercial
624,100
164,471
46,923
835,494
(3,121)
(10,289)
(18,743)
(32,153)
0.5
6.3
39.9
3.8
–  non-bank financial
institutions
83,715
110,542
459
194,716
(862)
(3,426)
(82)
(4,370)
1.0
3.1
17.9
2.2
Loans and advances to
banks at amortised cost
583,447
—
—
583,447
(8)
—
—
(8)
—
—
—
—
Other financial assets
measured at amortised
cost
729,548
3,798
14,605
747,951
(11)
(6)
(9,826)
(9,843)
—
0.2
67.3
1.3
Loan and other credit-
related commitments
944,705
124,980
1,634
1,071,319
(458)
(991)
(244)
(1,693)
—
0.8
14.9
0.2
–  personal
449,176
10,608
114
459,898
(31)
—
—
(31)
—
—
—
—
–  corporate and
commercial (including
non-bank financial
institutions)
475,529
114,372
1,520
591,421
(427)
(991)
(244)
(1,662)
0.1
0.9
16.1
0.3
–  banks
20,000
—
—
20,000
—
—
—
—
—
—
—
—
Financial guarantee and
similar contracts
116,236
32,544
1,242
150,022
(235)
(194)
(298)
(727)
0.2
0.6
24.0
0.5
–  personal
5,547
32
—
5,579
—
(31)
—
(31)
—
96.9
—
0.6
–  corporate and
commercial (including
non-bank financial
institutions)
110,689
32,512
1,242
144,443
(235)
(163)
(298)
(696)
0.2
0.5
24.0
0.5
At 31 December 2020
5,237,426
491,409
148,477
5,877,312
(14,312)
(20,327)
(37,541)
(72,180)
0.3
4.1
25.3
1.2
Stage 2 days past due analysis at 31 December 2020
Gross exposure
Allowance for ECL
ECL coverage %
Stage 2
Of which:
Of which:
Stage 2
Of which:
Of which:
Stage 2
Of which:
Of which:
<30 DPD
>30 DPD
<30 DPD
>30 DPD
<30 DPD
>30 DPD
€000
€000
€000
€000
€000
€000
%
%
%
Loans and advances to customers at amortised cost:
330,087
323,474
6,613
(19,136)
(18,468)
(668)
5.8
5.7
10.1
–  personal
55,074
48,517
6,557
(5,421)
(4,754)
(667)
9.8
9.8
10.2
–  corporate and commercial
164,471
164,415
56
(10,289)
(10,288)
(1)
6.3
6.3
1.8
–  non-bank financial institutions
110,542
110,542
—
(3,426)
(3,426)
—
3.1
3.1
—
Other financial assets measured at amortised cost
3,798
3,746
52
(6)
(6)
—
0.2
0.2
—
The credit quality of all financial instruments that are subject to credit risk is a point-in-time assessment of the probability of default of
financial instruments, whereas IFRS 9 stages 1 and 2 are determined based on relative deterioration of credit quality since initial
recognition. Accordingly, for non-credit impaired financial instruments, the credit quality assessment is not necessarily fully aligned to
IFRS 9 stages 1 and 2, though typically the lower credit quality bands exhibit a higher proportion in stage 2.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
77
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage distribution
Gross carrying/nominal amount
Allowance
for ECL
Net
Strong
Good
Satisfactory
Sub-
standard
Credit
impaired
Total
€000
€000
€000
€000
€000
€000
€000
€000
Loans and advances to customers at amortised cost
1,044,946
1,285,585
547,430
208,385
168,411
3,254,757
(58,032)
3,196,725
–  stage 1
1,039,912
1,280,424
481,569
28,882
—
2,830,787
(14,740)
2,816,047
–  stage 2
5,034
5,161
65,861
179,503
—
255,559
(15,615)
239,944
–  stage 3
—
—
—
—
168,411
168,411
(27,677)
140,734
Loans and advances to banks at amortised cost
613,064
—
—
—
—
613,064
(2)
613,062
–  stage 1
613,064
—
—
—
—
613,064
(2)
613,062
–  stage 2
—
—
—
—
—
—
—
—
–  stage 3
—
—
—
—
—
—
—
—
Other financial assets measured at amortised cost
1,252,075
2,438
2,766
1,148
14,831
1,273,258
(9,696)
1,263,562
–  stage 1
1,252,067
2,411
2,514
183
—
1,257,175
(8)
1,257,167
–  stage 2
8
27
252
965
—
1,252
—
1,252
–  stage 3
—
—
—
—
14,831
14,831
(9,688)
5,143
Loan and other credit-related commitments
486,619
109,327
302,620
59,702
9,471
967,739
(1,173)
966,566
–  stage 1
486,513
106,262
273,236
10,284
—
876,295
(455)
875,840
–  stage 2
106
3,065
29,384
49,418
—
81,973
(374)
81,599
–  stage 3
—
—
—
—
9,471
9,471
(344)
9,127
Financial guarantees and similar contracts
19,731
2,286
101,612
14,996
1,734
140,359
(597)
139,762
–  stage 1
18,230
2,286
87,146
3,944
—
111,606
(187)
111,419
–  stage 2
1,501
—
14,466
11,052
—
27,019
(119)
26,900
–  stage 3
—
—
—
—
1,734
1,734
(291)
1,443
At 31 December 2021
3,416,435
1,399,636
954,428
284,231
194,447
6,249,177
(69,500)
6,179,677
Fair value
Allowance
for ECL
Strong
Good
Satisfactory
Sub-
standard
Credit
impaired
Total
€000
€000
€000
€000
€000
€000
€000
Debt instruments measured at fair value through other comprehensive
income
845,700
—
—
—
—
845,700
(69)
–  stage 1
845,700
—
—
—
—
845,700
(69)
–  stage 2
—
—
—
—
—
—
—
–  stage 3
—
—
—
—
—
—
—
Treasury Bills measured at fair value through other comprehensive
income
228,172
—
—
—
—
228,172
(7)
–  stage 1
228,172
—
—
—
—
228,172
(7)
–  stage 2
—
—
—
—
—
—
—
–  stage 3
—
—
—
—
—
—
—
At 31 December 2021
1,073,872
—
—
—
—
1,073,872
(76)
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage distribution
Gross carrying/nominal amount
Allowance
for ECL
Net
Strong
Good
Satisfactory
Sub-
standard
Credit
impaired
Total
€000
€000
€000
€000
€000
€000
€000
€000
Loans and advances to customers at amortised cost
951,506
1,289,538
727,317
225,216
130,996
3,324,573
(59,909)
3,264,664
–  stage 1
951,034
1,288,755
616,082
7,619
—
2,863,490
(13,600)
2,849,890
–  stage 2
472
783
111,235
217,597
—
330,087
(19,136)
310,951
–  stage 3
—
—
—
—
130,996
130,996
(27,173)
103,823
Loans and advances to banks at amortised cost
583,447
—
—
—
—
583,447
(8)
583,439
–  stage 1
583,447
—
—
—
—
583,447
(8)
583,439
–  stage 2
—
—
—
—
—
—
—
—
–  stage 3
—
—
—
—
—
—
—
—
Other financial assets measured at amortised cost
724,063
2,800
3,336
3,147
14,605
747,951
(9,843)
738,108
–  stage 1
724,062
2,799
2,609
78
—
729,548
(11)
729,537
–  stage 2
1
1
727
3,069
—
3,798
(6)
3,792
–  stage 3
—
—
—
—
14,605
14,605
(9,826)
4,779
Loan and other credit-related commitments
494,823
142,784
377,579
54,499
1,634
1,071,319
(1,693)
1,069,626
–  stage 1
494,660
140,909
305,637
3,499
—
944,705
(458)
944,247
–  stage 2
163
1,875
71,942
51,000
—
124,980
(991)
123,989
–  stage 3
—
—
—
—
1,634
1,634
(244)
1,390
Financial guarantees and similar contracts
15,635
7,302
111,239
14,604
1,242
150,022
(727)
149,295
–  stage 1
15,635
6,786
93,687
128
—
116,236
(235)
116,001
–  stage 2
—
516
17,552
14,476
—
32,544
(194)
32,350
–  stage 3
—
—
—
—
1,242
1,242
(298)
944
At 31 December 2020
2,769,474
1,442,424
1,219,471
297,466
148,477
5,877,312
(72,180)
5,805,132
Notes on the financial statements
78
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage distribution
(continued)
Fair value
Allowance
for ECL
Strong
Good
Satisfactory
Sub-
standard
Credit
impaired
Total
€000
€000
€000
€000
€000
€000
€000
Debt instruments measured at fair value through other comprehensive
income
877,452
—
—
—
—
877,452
(340)
–  stage 1
877,452
—
—
—
—
877,452
(340)
–  stage 2
—
—
—
—
—
—
—
–  stage 3
—
—
—
—
—
—
—
Treasury Bills measured at fair value through other comprehensive
income
256,302
—
—
—
—
256,302
(30)
–  stage 1
256,302
—
—
—
—
256,302
(30)
–  stage 2
—
—
—
—
—
—
—
–  stage 3
—
—
—
—
—
—
—
At 31 December 2020
1,133,754
—
—
—
—
1,133,754
(370)
Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers, including loan
and other credit-related commitments, acceptances, accrued income and financial guarantees and similar contracts
The following disclosure provides a reconciliation by stage of the bank’s gross carrying/nominal amount and allowances for loans and
advances to customers, including the portion of loan and other credit-related commitments relating solely to loans and advances to
customers excluding loans and other credit related commitments to banks.
The ‘Transfers of financial instruments’ represent the impact of stage transfers upon the gross carrying/nominal amount and associated
allowance for ECL. The ‘Net remeasurement of ECL arising from stage transfers’ represents the increase or decrease due to these
transfers, for example, moving from a 12-month (stage 1) to a lifetime (stage 2) ECL measurement basis, including the underlying CRR
movements of the financial instruments transferring stage. Movements in ECL arising as a result of changes to the underlying PDs and
LGDs, including as a result of changes in macroeconomic scenarios, are captured in the ‘Changes in risk parameters’ line item.
The ‘Net new and further lending/repayments’ represent the gross carrying/nominal amount and associated allowance ECL impact from
volume movements within the bank’s lending portfolio.
The ECL charge reflected during the financial year ended 31 December 2020 amounting to €24.9 million was driven by the impact of the
outbreak of the Covid-19 pandemic on economic conditions. The increase in credit loss allowances reflected the general downturn in
economic conditions, as well as a significant deterioration in the forward economic outlook as a result of the pandemic.
A decrease in credit loss allowances resulted in an ECL release amounting to €2.7 million during the financial year ended 31 December
2021. This was primarily attributable to significant repayments effected during 2021 leading to reductions in credit loss allowances
amounting to €4.5 million, particularly in respect of stage 2 and stage 3 exposures, and to amounts written off in respect of stage 3
exposures giving rise to an ECL release amounting to €4.3 million. These reductions were partly offset by migrations of exposures from
stage 1 to stage 2 or 3 as well as changes in risk parameters in respect of modelled ECL, resulting in increases in credit loss allowances
during 2021 amounting to €1.9 million and €4.2 million, respectively. The latter primarily reflects the application of management overlays
on the basis of expert credit risk judgement, designed to capture the sustained level of uncertainty driven by the general slowdown in
economic activity. These overlays estimate the ECL impact of delayed default emergence due to government support schemes,
uncertainties in respect of potential additional waves of Covid-19 infections or new virus strains, as well as the potential economic impact
of Malta’s grey-listing by the FATF during 2021.
The significant increases in forward-looking risk parameters (PDs and LGDs) experienced during the financial year ended 31 December
2020, reflecting more pessimistic macroeconomic scenarios forecasted in the modelling of credit loss allowances, remain applicable as at
31 December 2021, due to the prevailing level of continued economic uncertainty. This is described in more detail in Note 4(b)(iii) –
Forward-looking information incorporated in the ECL model.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
79
Non-credit impaired
Credit impaired
Total
Stage 1
Stage 2
Stage 3
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
€000
€000
€000
€000
€000
€000
€000
€000
As at 1 January 2021
3,912,437
(14,294)
491,409
(20,327)
148,477
(37,541)
4,552,323
(72,162)
Transfers of financial instruments
(36,284)
(2,998)
(35,553)
7,215
71,837
(4,217)
—
—
–  transfers from stage 1 to stage 2
(83,796)
590
83,796
(590)
—
—
—
—
–  transfers from stage 2 to stage 1
66,557
(3,480)
(66,557)
3,480
—
—
—
—
–  transfers from stage 3
1,546
(189)
3,932
(555)
(5,478)
744
—
—
–  transfers to stage 3
(20,591)
81
(56,724)
4,880
77,315
(4,961)
—
—
Net remeasurement of ECL arising from stage transfers
—
3,395
—
(1,904)
—
(3,405)
—
(1,914)
Changes in risk parameters
—
(1,317)
—
(2,902)
—
29
—
(4,190)
Net new and further lending/repayments
(58,640)
(168)
(90,053)
1,810
(21,559)
2,826
(170,252)
4,468
Assets written off
—
—
—
—
(4,308)
4,308
(4,308)
4,308
As at 31 December 2021
3,817,513
(15,382)
365,803
(16,108)
194,447
(38,000)
4,377,763
(69,490)
ECL release for the year
2,672
Recoveries
1,114
Other
1,215
Change in expected credit losses for the year
5,001
Assets written off
(4,308)
Change in expected credit losses and other credit
impairment charges
693
Changes in expected credit losses for the period comprise the reclassification of the discount unwind element to interest income, amounting to €1.1m
for the year ended 31 December 2021 and included in ‘Other’ along with the effects of foreign exchange adjustments in the above reconciliation.
At 31 December 2021
12 months
ended
31 December
2021
Gross
carrying/
nominal
amount
Allowance
for ECL
ECL
(charge)/
release
€000
€000
€000
As above
4,377,763
(69,490)
693
Balances at central banks
1,241,462
(8)
2
Loans and advances to banks measured at amortised cost
613,064
(2)
6
Items in course of collection
4,453
—
—
Accrued interest on debt instruments and other accrued income
3,693
—
—
Loan and other credit related commitments - banks
8,742
—
—
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
through the Income Statement
6,249,177
(69,500)
701
Debt instruments and Treasury Bills measured at fair value through other comprehensive income
1,073,872
(76)
294
Total allowance for ECL/total income statement ECL release for the year
N/A
(69,576)
995
Notes on the financial statements
80
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Non-credit impaired
Credit impaired
Total
Stage 1
Stage 2
Stage 3
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
€000
€000
€000
€000
€000
€000
€000
€000
As at 1 January 2020
4,270,104
(8,575)
109,916
(6,297)
136,508
(32,403)
4,516,528
(47,275)
Transfers of financial instruments:
(368,156)
521
336,436
(992)
31,720
471
—
—
–  transfers from stage 1 to stage 2
(367,637)
2,098
367,637
(2,098)
—
—
—
—
–  transfers from stage 2 to stage 1
25,431
(1,116)
(25,431)
1,116
—
—
—
—
–  transfers from stage 3
4,368
(492)
4,725
(602)
(9,093)
1,094
—
—
–  transfers to stage 3
(30,318)
31
(10,495)
592
40,813
(623)
—
—
Net remeasurement of ECL arising from stage transfers
—
1,380
—
(11,820)
—
(4,216)
—
(14,656)
Changes in risk parameters
—
(8,477)
—
(2,833)
—
(5,191)
—
(16,501)
Net new and further lending/repayments
10,489
857
45,057
1,615
(17,728)
1,775
37,818
4,247
Assets written off
—
—
—
—
(2,023)
2,023
(2,023)
2,023
As at 31 December 2020
3,912,437
(14,294)
491,409
(20,327)
148,477
(37,541)
4,552,323
(72,162)
ECL charge for the year
(24,887)
Recoveries
755
Other
902
Change in expected credit losses for the year
(23,230)
Assets written off
(2,023)
Change in expected credit losses and other credit
impairment charges
(25,253)
Changes in expected credit losses for the period comprise the reclassification of the discount unwind element to interest income, amounting to
€1.1m for the year ended 31 December 2020 and included in ‘Other’ along with the effects of foreign exchange adjustments in the above
reconciliation.
The reduction in allowances for ECL in relation to ‘Net new and further lending/repayments’ corresponds to a net increase in gross carrying/
nominal amounts. This is driven by net increases in loan and other credit-related commitments, which attract lower ECL than on-balance sheet
exposures.
At 31 December 2020
12 months
ended
31 December
2020
Gross
carrying/
nominal
amount
Allowance
for ECL
ECL
(charge)/
release
€000
€000
€000
As above
4,552,323
(72,162)
(25,253)
Balances at central banks
711,497
(10)
9
Loans and advances to banks measured at amortised cost
583,447
(8)
(7)
Items in course of collection
4,959
—
—
Accrued interest on debt instruments and other accrued income
5,086
—
—
Loan and other credit related commitments - banks
20,000
—
—
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied through the Income Statement
5,877,312
(72,180)
(25,251)
Debt instruments and Treasury Bills measured at fair value through other comprehensive income
1,133.754
(370)
(338)
Total allowance for ECL/total income statement ECL charge for the year
N/A
(72,550)
(25,589)
Credit loss allowances attributable to loans and advances to customers
As explained in further detail in note 52 ‘Segmental information’, the bank’s lending activities are organised in two business segments,
Wealth and Personal Banking (‘WPB’) and Commercial Banking (‘CMB’).
WPB offers a broad range of products to meet the needs of individual customers. WPB also offers Retail Business Banking (‘RBB’)
products and services to small business owners. Transactions and balances with RBB customers are classified as wholesale in the
following tables.
CMB offers products and services to commercial and non banking customers. Transactions and balances with CMB customers are all
presented as wholesale in tables to follow other than credit card transactions which are reported as personal.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
81
The following tables show the allowances for ECL recognised as at 31 December 2021 and 31 December 2020.
Segmental information in relation to impairment allowances on loans and advances to customers
Stage 1
Stage 2
Stage 3
Total
Loans and advances to customers
€000
€000
€000
€000
WPB
11,940
4,388
8,148
24,476
CMB
2,800
11,227
19,529
33,556
At 31 December 2021
14,740
15,615
27,677
58,032
Loan and other credit-related commitments and financial guarantee and similar contracts
WPB
46
—
—
46
CMB
596
493
635
1,724
At 31 December 2021
642
493
635
1,770
Loans and advances to customers
WPB
9,631
5,417
8,329
23,377
CMB
3,969
13,719
18,844
36,532
At 31 December 2020
13,600
19,136
27,173
59,909
Loan and other credit-related commitments and financial guarantee and similar contracts
WPB
31
31
—
62
CMB
662
1,154
542
2,358
At 31 December 2020
693
1,185
542
2,420
The measurement of allowances for ECL and the ECL release/charge for 2021 and 2020 are analysed in detail in the tables presented in
the previous section. In addition, these movements are further analysed by business segment in the tables presented within the sections
entitled ‘Wholesale lending to customers’ and ‘Personal lending to customers’ respectively.
Renegotiated loans and advances to customers and forbearance
The contractual terms of a loan may be modified for a number of reasons including changing market conditions, customer retention and
other factors not related to the current or potential credit deterioration of a customer. ‘Forbearance’ describes concessions made on the
contractual terms of a loan in response to an obligor’s financial difficulties. The bank classifies and reports loans on which concessions
have been granted under conditions of credit distress as ‘renegotiated loans’ when their contractual payment terms have been modified,
because the bank has significant concerns about the borrowers’ ability to meet contractual payments when due. Therefore the terms
‘forborne’ and ‘renegotiated’ loans are used interchangeably.
On renegotiation, where the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the
terms of an existing agreement are modified, such that the renegotiated loan is substantially a different financial instrument, the loan
would be derecognised and recognised as a new loan, for accounting purposes. However, newly recognised loans retain the
‘renegotiated loans’ classification.
A range of forbearance strategies is employed in order to improve the management of customer relationships, maximise collection
opportunities and, if possible, avoid default, foreclosure or repossession. They include extended payment terms, a reduction in interest or
principal repayments, approved external debt management plans, debt consolidations, the deferral of foreclosures, and other forms of
loan modifications and re-ageing.
The bank’s policies and practices are based on criteria which enable management to judge whether repayment is likely to continue.
These typically provide a customer with terms and conditions that are more favourable than those provided initially. Loan forbearance is
only granted in situations where the customer has showed a willingness to repay the borrowing and is expected to be able to meet the
revised obligations.
For retail lending, unsecured renegotiated loans are generally segmented from other parts of the loan portfolio. Renegotiated expected
credit loss assessments reflect the higher rates of losses typically encountered with renegotiated loans. For wholesale lending,
renegotiated loans are typically assessed individually. Credit risk ratings are intrinsic to the impairment assessments. The individual
impairment assessment takes into account the higher risk of the future non-payment inherent in renegotiated loans.
For personal lending, the bank’s credit risk management policy sets out restrictions on the number and frequency of renegotiations, the
minimum period an account must have been opened before any renegotiation can be considered and the number of qualifying payments
that must be received.
When the bank grants a concession to a customer that the bank would not otherwise consider, as a result of their financial difficulty, this
is objective evidence of impairment and impairment losses are measured accordingly. A renegotiated loan is presented as impaired when
there has been a change in contractual cash flows as a result of a concession which the lender would otherwise not consider; and it is
probable that without the concession, the borrower would be unable to meet contractual payment obligations in full. Accordingly, where
the customer is not meeting contractual repayments or it is evident that they will be unable to do so without the renegotiation, there will
be a significant concern regarding their ability to meet contractual payments, and the loan will be disclosed as impaired, unless the
concession granted is insignificant. The renegotiated loan will continue to be disclosed as impaired until there is sufficient evidence to
demonstrate a significant reduction in the risk of non-payment of future cash flows, and there are no other indicators of impairment.
In relation to wholesale lending, the bank categorises a forborne exposure as performing if no unlikely-to-pay indicators are evident.
Renegotiated loans are classified as non-credit impaired where the renegotiation has resulted from significant concern about a
borrower’s ability to meet contractual payment terms but contractual cash flows are expected to be collected in full following the
renegotiation.
Unimpaired renegotiated loans also include previously impaired renegotiated loans that have demonstrated satisfactory performance
over a period of time or have been assessed based on all available evidence as having no remaining indicators of impairment.
Loans that have been identified as renegotiated retain this designation until maturity or derecognition. When a loan is restructured as part
of a forbearance strategy and the restructuring results in a derecognition of the existing loan, the new loan is disclosed as renegotiated.
Notes on the financial statements
82
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
A loan that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement made on substantially different
terms, or if the terms of an existing agreement are modified, such that the renegotiated loan is substantially a different financial
instrument as outlined previously.
When determining whether a loan that is restructured should be derecognised and a new loan recognised, the bank considers the extent
to which the changes to the original contractual terms result in the renegotiated loan, considered as a whole, being a substantially
different financial instrument.
During the financial year ended 31 December 2020, a number of government support schemes and regulatory relief measures were
announced in response to the outbreak of the Covid-19 pandemic, one of which being the granting of moratoria on capital and/or interest
payments to provide relief to individual and corporate customers during the ensuing macroeconomic recession triggered by the
pandemic. In this regard, the Central Bank of Malta issued Directive No. 18 On Moratoria on Credit Facilities in Exceptional
Circumstances ('Directive No. 18') in order to provide guidance on the treatment of such instances, in line with European Banking
Authority ('EBA') Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the Covid-19 crisis (the
'EBA Guidelines')1. These are referred to as general payment moratoria.
In line with the EBA Guidelines and Directive No. 18, exposures meeting established criteria and eligible for the granting of a general
payment moratorium are not classified as forborne/renegotiated, unless the borrower was already experiencing financial difficulties prior
to the pandemic. Nevertheless, the bank performed an assessment in respect of such exposures in order to determine whether the short-
term shock may transform into long-term financial difficulties, thereby potentially requiring a downgrade to stage 2 or stage 3 to reflect
the level of credit risk as appropriate. This assessment was performed on a periodic basis at borrower level in respect of wholesale
exposures, whereas the assessment in respect of retail exposures was performed by reference to shared credit quality characteristics
(e.g. employment status and sector within which the customer is employed).
In accordance with the requirements of Directive No. 18, applications for new general payment moratoria or for extensions of existing
general payment moratoria were accepted until 31 March 2021, with the total duration of the moratorium, inclusive of extensions, being
limited to nine months. In this respect, applications for new general payment moratoria or for extensions of general payment moratoria
received after 31 March 2021, or extending beyond the maximum duration prescribed by Directive No. 18, are considered to be
forbearance measures. In addition, the granting of moratoria which do not meet the conditions of a general payment moratorium are also
considered to be forbearance measures.
The following table shows the gross carrying amounts of the bank’s holdings of renegotiated loans and advances to customers by
industry sector and by stage. Unless the conditions for classification as a performing forborne exposure are met, renegotiated loans are
classified as stage 3 until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future cash
flows, observed over a minimum one-year period, and there are no other indicators of impairment. Exposures eligible for a general
payment moratorium are not considered to be renegotiated loans and are therefore not included in the table below.
Renegotiated loans and advances to customers by business segment and credit quality classification
Stage 1
Stage 2
Stage 3
Total
€000
€000
€000
€000
Gross carrying amount
Personal
–  first lien residential mortgages
—
16,260
40,190
56,450
–  other personal lending
—
1,544
6,911
8,455
Wholesale
–  corporate and commercial
79
24,823
63,472
88,374
–  non-bank financial institutions
—
26,155
4,459
30,614
At 31 December 2021
79
68,782
115,032
183,893
Allowance for ECL
Personal
–  first lien residential mortgages
—
(1,188)
(3,913)
(5,101)
–  other personal lending
—
(28)
(766)
(794)
Wholesale
–  corporate and commercial
(1)
(4,107)
(15,583)
(19,691)
–  non-bank financial institutions
—
(1,194)
(279)
(1,473)
At 31 December 2021
(1)
(6,517)
(20,541)
(27,059)
Gross carrying amount
Personal
–  first lien residential mortgages
—
15,482
34,880
50,362
–  other personal lending
—
1,580
5,922
7,502
Wholesale
–  corporate and commercial
86
5,657
39,741
45,484
–  non-bank financial institutions
—
—
451
451
At 31 December 2020
86
22,719
80,994
103,799
Allowance for ECL
Personal
–  first lien residential mortgages
—
(1,385)
(3,652)
(5,037)
–  other personal lending
—
(46)
(716)
(762)
Wholesale
–  corporate and commercial
(2)
(1,453)
(16,054)
(17,509)
–  non-bank financial institutions
—
—
(80)
(80)
At 31 December 2020
(2)
(2,884)
(20,502)
(23,388)
1EBA Guideline (EBA/GL/2020/02) published on 2 April 2020, as amended by EBA/GL/2020/08 published on 25 June 2020, and EBA/GL/2020/15
published on 2 December 2020.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
83
Renegotiated loans and advances to customers by business segment and credit quality classification (continued)
2021
2020
€000
€000
Total renegotiated loans and advances to customers as a percentage of total gross loans and advances to customers
5.6%
3.1%
Interest income recognised in respect of forborne/renegotiated assets
7,173
4,709
Movement in forbearance activity during the year:
At 1 January
103,799
87,347
Loans renegotiated without derecognition
96,491
30,007
Repayments
(13,097)
(12,916)
Amounts written off
(3,300)
(639)
At 31 December
183,893
103,799
In addition to renegotiated loans as disclosed in the tables above, during 2020 the bank granted moratoria to 1,821 obligors in respect of
gross exposures amounting to €430,158,000, which moratoria met the criteria for a general payment moratorium as established within
Directive No. 18 and the EBA Guidelines.
As at 31 December 2020, outstanding gross loans and advances subject to general payment moratoria amounted to €163,536,000 of
which €99,964,000 were classified in stage 2 and €5,110,000 were classified in stage 3. The allowance for ECL in respect of stage 1 loans
subject to general payment moratoria amounted to €457,000, while the ECL in respect of stage 2 and stage 3 loans subject to general
payment moratoria amounted to €4,541,000 and €175,000 respectively.
During the financial year ended 31 December 2021, extensions to general payment moratoria in respect of loans subject to general
payment moratoria as at 31 December 2020 were granted to 52 obligors in respect of gross exposures amounting to €11,190,000, which
extensions met the criteria established within Directive No. 18 and the EBA Guidelines.
During 2021, the bank also granted new moratoria to 9 obligors in respect of gross exposures amounting to €4,539,000, which moratoria
met the criteria for a general payment moratorium as established within Directive No. 18 and the EBA Guidelines.
Extensions to existing moratoria and new moratoria granted during the financial year ended 31 December 2021, which do not meet the
criteria established within Directive No. 18 and the EBA Guidelines, are classified as renegotiated loans and are therefore included in the
tables above.
As at 31 December 2021, no outstanding gross loans and advances were subject to general payment moratoria.
Out of the outstanding gross loans and advances subject to general payment moratoria as at 31 December 2020, €43,575,000 related to
retail mortgage customers. In order to earmark obligors experiencing a significant increase in credit risk and estimate the impact of
delayed emergence of defaults in view of these moratoria, and accordingly estimate the ECL referred to above, the bank designed a post-
model estimation methodology, using a segmentation technique which amongst other factors takes into consideration employment
status and employment sector of the obligor.
Following the expiration of all general payment moratoria during 2021, this post-model estimation methodology was enhanced to
estimate the impact of delayed emergence of default in view of the government support measures which were still in force during the
year ended 31 December 2021. In this respect, the bank adjusted the methodology to capture the delayed emergence of default in
relation to retail mortgage customers to whom a general payment moratorium was granted since the outbreak of the Covid-19 pandemic.
The default risk following the eventual uplift of government support measures is deemed to be higher in respect of such customers and,
accordingly, the potential impact on ECL as a result of the above was estimated.
In respect of wholesale exposures, the bank assessed and individually rated each borrower requesting a general payment moratorium on
the basis of recently obtained management information, including forecasts.
During 2020, the bank had also confirmed its participation in the Malta Development Bank Covid-19 Guarantee Scheme, whereby the risk
of newly originated loans under the scheme to viable businesses experiencing liquidity pressures resulting from the effects of the
pandemic are mitigated by a government guarantee. In this respect, as at 31 December 2021, newly originated gross loans subject to the
Malta Development Bank Covid-19 Guarantee Scheme amounted to €37,760,000 (2020: €14,284,000), of which a maximum amount of
€33,984,000 (2020: €12,676,000) is considered guaranteed. As at 31 December 2021, gross loans originated under this scheme classified
as stage 1 and stage 2 amounted to €25,024,000 (2020: €5,734,000) and €9,530,000 (2020: €8,550,000) respectively. As at 31 December
2021, loans originated under this scheme classified in stage 3 amounted to €3,206,000 (2020: Nil).
The allowance for ECL in respect of the corresponding loans classified as stage 1, stage 2 and stage 3 amounted to €343,000 (2020:
€61,000), €354,000 (2020: €360,000) and €127,000 (2020: Nil) respectively.
Wholesale lending to customers
This section provides further detail on the distribution of allowances for ECL on wholesale loans and advances to customers, together
with the respective gross carrying amounts, by industry and stage. Product granularity is also provided by stage with data presented for
loans and advances to customers, other credit commitments, financial guarantees and similar contracts. Additionally, this section
provides a reconciliation of the opening gross carrying/nominal amounts as at 1 January 2021 and 2020 to the closing carrying/nominal
amounts as at 31 December 2021 and 2020 respectively, together with the associated allowances for ECL.
Notes on the financial statements
84
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Total wholesale lending for loans and advances to customers by stage distribution
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
€000
€000
€000
€000
€000
€000
€000
€000
Corporate and commercial
641,574
122,874
74,705
839,153
(2,466)
(8,129)
(19,240)
(29,835)
–  agriculture, forestry and fishing
203
304
99
606
(3)
(2)
(8)
(13)
–  manufacture
35,012
9,638
8,051
52,701
(293)
(278)
(2,696)
(3,267)
–  electricity, gas, steam and air-conditioning supply
75,396
—
—
75,396
(184)
—
—
(184)
–  water supply, sewerage, waste management and
remediation
33,269
—
—
33,269
(7)
—
—
(7)
–  construction
17,714
1,325
3,305
22,344
(114)
(7)
(739)
(860)
–  wholesale and retail trade, repair of motor vehicles and
motorcycles
162,146
33,814
14,068
210,028
(466)
(1,211)
(3,369)
(5,046)
–  transportation and storage
7,026
6,911
16
13,953
(42)
(127)
(16)
(185)
–  accommodation and food
17,793
48,975
25,758
92,526
(247)
(4,056)
(6,040)
(10,343)
–  information and communication
28,558
3,521
1
32,080
(248)
(1,449)
(1)
(1,698)
–  real estate
85,930
6,346
13,937
106,213
(641)
(464)
(1,930)
(3,035)
–  professional, scientific and technical activities
4,770
1,111
20
5,901
(17)
(8)
(20)
(45)
–  administrative and support services
1,881
1,914
454
4,249
(22)
(295)
(34)
(351)
–  education
385
—
3,549
3,934
(4)
—
(550)
(554)
–  health and care
11,077
8,795
5,056
24,928
(116)
(230)
(3,705)
(4,051)
–  arts, entertainment and recreation
173
19
105
297
(1)
—
(19)
(20)
–  other services
3,156
201
286
3,643
(30)
(2)
(113)
(145)
–  public administration and defence, compulsory social 
security
157,085
—
—
157,085
(31)
—
—
(31)
Non-bank financial institutions
38,032
82,906
4,472
125,410
(341)
(3,100)
(286)
(3,727)
At 31 December 2021
679,606
205,780
79,177
964,563
(2,807)
(11,229)
(19,526)
(33,562)
Other financial assets measured at amortised cost
–  endorsements and acceptances
842
—
—
842
—
—
—
—
–  accrued income
2,282
883
10,221
13,386
—
—
(7,682)
(7,682)
At 31 December 2021
3,124
883
10,221
14,228
—
—
(7,682)
(7,682)
Corporate and commercial
624,100
164,471
46,923
835,494
(3,121)
(10,289)
(18,743)
(32,153)
–  agriculture, forestry and fishing
126
430
367
923
—
(10)
(81)
(91)
–  manufacture
33,466
8,524
5,886
47,876
(335)
(361)
(2,471)
(3,167)
–  electricity, gas, steam and air-conditioning supply
82,212
21
—
82,233
(276)
—
—
(276)
–  water supply, sewerage, waste management and
remediation
34,875
21
—
34,896
(16)
—
—
(16)
–  construction
9,370
3,970
1,546
14,886
(80)
(86)
(765)
(931)
–  wholesale and retail trade, repair of motor vehicles and
motorcycles
79,753
42,752
6,926
129,431
(630)
(1,204)
(2,680)
(4,514)
–  transportation and storage
8,095
7,711
147
15,953
(66)
(204)
(53)
(323)
–  accommodation and food
5,201
76,321
4,535
86,057
(88)
(5,101)
(2,785)
(7,974)
–  information and communication
30,897
4,078
3
34,978
(325)
(1,220)
(3)
(1,548)
–  real estate
90,726
13,264
21,281
125,271
(1,087)
(1,219)
(5,930)
(8,236)
–  professional, scientific and technical activities
82,787
122
8
82,917
(68)
(8)
(8)
(84)
–  administrative and support services
2,827
2,051
453
5,331
(8)
(182)
(8)
(198)
–  education
171
3,309
—
3,480
(3)
(579)
—
(582)
–  health and care
5,517
345
5,043
10,905
(57)
(4)
(3,756)
(3,817)
–  arts, entertainment and recreation
342
1,054
25
1,421
(1)
(36)
(25)
(62)
–  other services
2,534
498
703
3,735
(29)
(75)
(178)
(282)
–  public administration and defence, compulsory social 
security
155,201
—
—
155,201
(52)
—
—
(52)
Non-bank financial institutions
83,715
110,542
459
194,716
(862)
(3,426)
(82)
(4,370)
At 31 December 2020
707,815
275,013
47,382
1,030,210
(3,983)
(13,715)
(18,825)
(36,523)
Other financial assets measured at amortised cost
–  endorsements and acceptances
512
609
—
1,121
(1)
(6)
—
(7)
–  accrued income
2,354
2,815
9,541
14,710
—
—
(7,381)
(7,381)
At 31 December 2020
2,866
3,424
9,541
15,831
(1)
(6)
(7,381)
(7,388)
Total wholesale lending for loan and other credit-related commitments and financial guarantee and similar contracts by stage
distribution
Nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
€000
€000
€000
€000
€000
€000
€000
€000
Corporate and commercial
546,574
74,044
11,086
631,704
(542)
(453)
(635)
(1,630)
Non-bank financial institutions
28,886
26,670
—
55,556
(54)
(40)
—
(94)
At 31 December 2021
575,460
100,714
11,086
687,260
(596)
(493)
(635)
(1,724)
Corporate and commercial
546,887
116,877
2,762
666,526
(516)
(1,092)
(542)
(2,150)
Non-bank financial institutions
39,331
30,007
—
69,338
(146)
(62)
—
(208)
At 31 December 2020
586,218
146,884
2,762
735,864
(662)
(1,154)
(542)
(2,358)
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
85
Wholesale lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers
including loan and other credit-related commitments, acceptances, accrued income and financial guarantees and similar contracts
Non-credit impaired
Credit impaired
Total
Stage 1
Stage 2
Stage 3
Gross
carrying/
nominal
amount
Allowance for
ECL
Gross
carrying/
nominal
amount
Allowance for
ECL
Gross
carrying/
nominal
amount
Allowance for
ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
€000
€000
€000
€000
€000
€000
€000
€000
As at 1 January 2021
1,296,899
(4,646)
425,321
(14,875)
59,685
(26,748)
1,781,905
(46,269)
Transfers of financial instruments
(13,692)
(1,455)
(36,361)
5,668
50,053
(4,213)
—
—
–  transfers from stage 1 to stage 2
(62,843)
515
62,843
(515)
—
—
—
—
–  transfers from stage 2 to stage 1
50,173
(1,978)
(50,173)
1,978
—
—
—
—
–  transfers from stage 3
37
—
12
(12)
(49)
12
—
—
–  transfers to stage 3
(1,059)
8
(49,043)
4,217
50,102
(4,225)
—
—
Net remeasurement of ECL arising
from stage transfers
—
1,785
—
(539)
—
(1,484)
—
(238)
Changes in risk parameters
—
1,154
—
(3,187)
—
(2)
—
(2,035)
Net new and further lending/
repayments
(25,017)
(241)
(81,583)
1,211
(5,734)
1,084
(112,334)
2,054
Assets written off
(3,520)
3,520
(3,520)
3,520
As at 31 December 2021
1,258,190
(3,403)
307,377
(11,722)
100,484
(27,843)
1,666,051
(42,968)
ECL release for the year
3,301
Recoveries
409
Other
1,322
Change in expected credit
losses for the year
5,032
Assets written off
(3,520)
Change in expected credit
losses and other credit
impairment charges
1,512
Changes in expected credit losses for the period comprise the reclassification of the discount unwind element to interest income, amounting to €1.1m
for the year ended 31 December 2021 and included in ‘Other’ in the above reconciliation.
Non - credit impaired
Credit impaired
Total
Stage 1
Stage 2
Stage 3
Gross carrying/
nominal amount
Allowance for
ECL
Gross carrying/
nominal
amount
Allowance for
ECL
Gross carrying/
nominal
amount
Allowance for
ECL
Gross carrying/
nominal
amount
Allowance for
ECL
€000
€000
€000
€000
€000
€000
€000
€000
As at 1 January 2020
1,565,578
(6,887)
56,362
(2,601)
69,414
(24,039)
1,691,354
(33,527)
Transfers of financial instruments :
(319,437)
1,859
317,174
(1,783)
2,263
(76)
—
—
–  transfers from stage 1 to stage 2
(328,157)
2,048
328,157
(2,048)
—
—
—
—
–  transfers from stage 2 to stage 1
9,308
(199)
(9,308)
199
—
—
—
—
–  transfers from stage 3
—
—
27
(17)
(27)
17
—
—
–  transfers to stage 3
(588)
10
(1,702)
83
2,290
(93)
—
—
Net remeasurement of ECL arising
from stage transfers
—
92
—
(9,198)
—
(244)
—
(9,350)
Changes in risk parameters
—
(610)
—
(928)
—
(4,569)
—
(6,107)
Net new and further lending/
repayments
50,758
900
51,785
(365)
(11,278)
1,466
91,265
2,001
Assets written off
—
—
—
—
(714)
714
(714)
714
As at 31 December 2020
1,296,899
(4,646)
425,321
(14,875)
59,685
(26,748)
1,781,905
(46,269)
ECL charge for the year
(12,742)
Recoveries
250
Other
939
Change in expected credit losses
for the year
(11,553)
Assets written off
(714)
Change in expected credit losses
and other credit impairment
charges
(12,267)
Changes in expected credit losses for the period comprise the reclassification of the discount unwind element to interest income, amounting to €1.1m
for the year ended 31 December 2020 and included in ‘Other’ in the above reconciliation.
The reduction in allowances for ECL in relation to ‘Net new and further lending/repayments’ corresponds to a net increase in gross carrying/nominal
amounts. This is driven by net increases in loan and other credit-related commitments, which attract lower ECL than on-balance sheet exposures.
Notes on the financial statements
86
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Total wholesale lending for loan and other credit-related commitments and financial guarantee and similar contracts by credit quality
Gross exposure/nominal amount
Allowance
for ECL
Net
Strong
Good
Satisfactory
Sub-
standard
Credit
Impaired
Total
€000
€000
€000
€000
€000
€000
€000
€000
Corporate and commercial
194,435
13,217
358,989
53,977
11,086
631,704
(1,630)
630,074
Non-bank financial institutions
—
2,900
33,010
19,646
—
55,556
(94)
55,462
At 31 December 2021
194,435
16,117
391,999
73,623
11,086
687,260
(1,724)
685,536
Corporate and commercial
186,103
10,136
410,127
57,398
2,762
666,526
(2,151)
664,375
Non-bank financial institutions
—
2,630
56,906
9,802
—
69,338
(207)
69,131
At 31 December 2020
186,103
12,766
467,033
67,200
2,762
735,864
(2,358)
733,506
All corporate customers are rated using a 10-grade scale, with each CRR band being calibrated by reference to the Global Master Scale
developed by the HSBC Group on the basis of long run default rates for each grade. This mapping between internal and external ratings
is indicative and may vary over time. The table below shows the distribution of wholesale loans and advances to customers as at
31 December 2021 and 31 December 2020, together with their associated ECL allowance by CRR.
Wholesale lending – credit risk profile by obligor grade for loans and advances to customers
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
ECL
Coverage
€000
€000
€000
€000
€000
€000
€000
€000
%
Corporate and Commercial
641,574
122,874
74,705
839,153
(2,466)
(8,129)
(19,240)
(29,835)
3.6
CRR1
223,653
—
—
223,653
(29)
—
—
(29)
—
CRR2
58,686
—
—
58,686
(12)
—
—
(12)
—
CRR3
374
—
—
374
(2)
—
—
(2)
0.5
CRR4
134,286
—
—
134,286
(435)
—
—
(435)
0.3
CRR5
201,950
24,222
—
226,172
(1,653)
(577)
—
(2,230)
1.0
CRR6
21,036
58,925
—
79,961
(285)
(2,580)
—
(2,865)
3.6
CRR7
1,589
33,958
—
35,547
(50)
(3,160)
—
(3,210)
9.0
CRR8
—
5,769
—
5,769
—
(1,812)
—
(1,812)
31.4
CRR9/10
—
—
74,705
74,705
—
—
(19,240)
(19,240)
25.8
Non-bank financial institutions
38,032
82,906
4,472
125,410
(341)
(3,100)
(286)
(3,727)
3.0
CRR1
14
—
—
14
—
—
—
—
—
CRR2
—
—
—
—
—
—
—
—
—
CRR3
2,439
—
—
2,439
(4)
—
—
(4)
0.2
CRR4
1,053
—
—
1,053
(4)
—
—
(4)
0.4
CRR5
34,519
36,253
—
70,772
(333)
(778)
—
(1,111)
1.6
CRR6
7
39,472
—
39,479
—
(2,270)
—
(2,270)
5.7
CRR7
—
7,181
—
7,181
—
(52)
—
(52)
0.7
CRR8
—
—
—
—
—
—
—
—
—
CRR9/10
—
—
4,472
4,472
—
—
(286)
(286)
6.4
At 31 December 2021
679,606
205,780
79,177
964,563
(2,807)
(11,229)
(19,526)
(33,562)
3.5
Corporate and Commercial
624,100
164,471
46,923
835,494
(3,121)
(10,289)
(18,743)
(32,153)
3.8
CRR1
228,289
—
—
228,289
(15)
—
—
(15)
—
CRR2
55,515
—
—
55,515
(26)
—
—
(26)
—
CRR3
120
—
—
120
(1)
—
—
(1)
0.8
CRR4
157,550
4,937
—
162,487
(801)
(74)
—
(875)
0.5
CRR5
175,008
14,092
—
189,100
(2,122)
(390)
—
(2,512)
1.3
CRR6
7,618
100,682
—
108,300
(156)
(4,899)
—
(5,055)
4.7
CRR7
—
30,869
—
30,869
—
(2,556)
—
(2,556)
8.3
CRR8
—
13,891
—
13,891
—
(2,370)
—
(2,370)
17.1
CRR9/10
—
—
46,923
46,923
—
—
(18,743)
(18,743)
39.9
Non-bank financial institutions
83,715
110,542
459
194,716
(862)
(3,426)
(82)
(4,370)
2.2
CRR1
—
—
—
—
—
—
—
—
—
CRR2
—
—
—
—
—
—
—
—
—
CRR3
3,220
—
—
3,220
(6)
—
—
(6)
0.2
CRR4
32,311
38,061
—
70,372
(149)
(656)
—
(805)
1.1
CRR5
48,184
47,952
—
96,136
(707)
(1,675)
—
(2,382)
2.5
CRR6
—
20,485
—
20,485
—
(270)
—
(270)
1.3
CRR7
—
4,044
—
4,044
—
(825)
—
(825)
20.4
CRR8
—
—
—
—
—
—
—
—
—
CRR9/10
—
—
459
459
—
—
(82)
(82)
17.9
At 31 December 2020
707,815
275,013
47,382
1,030,210
(3,983)
(13,715)
(18,825)
(36,523)
3.5
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
87
Personal lending to customers
This section presents further disclosures related to personal lending. It provides details of the products which are driving the change
observed in personal loans and advances to customers. Additionally, this section provides a reconciliation of the opening gross carrying/
nominal amounts as at 1 January 2021 and 2020 to the closing carrying/nominal amounts as at 31 December 2021 and 2020
respectively, together with the associated allowances for ECL. Further product granularity is also provided by stage, with data presented
for loans and advances to customers, loan and other credit-related commitments and financial guarantees.
Total personal lending for loans and advances to customers by stage distribution 
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
€000
€000
€000
€000
€000
€000
€000
€000
By portfolio
First lien residential mortgages
1,974,558
37,323
75,272
2,087,153
(10,896)
(2,835)
(6,799)
(20,530)
Other personal lending
176,623
12,456
13,962
203,041
(1,037)
(1,551)
(1,352)
(3,940)
–  second lien residential mortgages
92,943
4,318
12,230
109,491
(412)
(168)
(220)
(800)
–  credit cards
27,666
985
94
28,745
(178)
(360)
(57)
(595)
–  other
56,014
7,153
1,638
64,805
(447)
(1,023)
(1,075)
(2,545)
At 31 December 2021
2,151,181
49,779
89,234
2,290,194
(11,933)
(4,386)
(8,151)
(24,470)
Other financial assets measured at amortised cost
–  accrued income
4,443
369
4,610
9,422
—
—
(2,006)
(2,006)
At 31 December 2021
4,443
369
4,610
9,422
—
—
(2,006)
(2,006)
By portfolio
First lien residential mortgages
1,960,035
40,159
69,707
2,069,901
(8,861)
(3,753)
(6,905)
(19,519)
Other personal lending
195,640
14,915
13,907
224,462
(756)
(1,668)
(1,443)
(3,867)
–  second lien residential mortgages 
106,289
4,874
11,949
123,112
(323)
(247)
(255)
(825)
–  credit cards 
28,148
1,475
199
29,822
(288)
(541)
(126)
(955)
–  other 
61,203
8,566
1,759
71,528
(145)
(880)
(1,062)
(2,087)
At 31 December 2020
2,155,675
55,074
83,614
2,294,363
(9,617)
(5,421)
(8,348)
(23,386)
Other financial assets measured at amortised cost
–  accrued income
5,140
374
5,064
10,578
—
—
(2,445)
(2,445)
At 31 December 2020
5,140
374
5,064
10,578
—
—
(2,445)
(2,445)
Total personal lending for loan and other credit-related commitments and financial guarantee and similar contracts by stage distribution
Nominal amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
€000
€000
€000
€000
€000
€000
€000
€000
Personal
403,699
8,278
119
412,096
(46)
—
—
(46)
At 31 December 2021
403,699
8,278
119
412,096
(46)
—
—
(46)
Personal
454,723
10,640
114
465,477
(31)
(31)
—
(62)
At 31 December 2020
454,723
10,640
114
465,477
(31)
(31)
—
(62)
Notes on the financial statements
88
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers
including loan and other credit-related commitments, lending related accrued income and financial guarantees and similar contracts
Non-credit impaired
Credit impaired
Total
Stage 1
Stage 2
Stage 3
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance
for ECL
Gross
carrying/
nominal
amount
Allowance for
ECL
Gross
carrying/
nominal
amount
Allowance for
ECL
€000
€000
€000
€000
€000
€000
€000
€000
As at 1 January 2021
2,615,538
(9,648)
66,088
(5,452)
88,792
(10,793)
2,770,418
(25,893)
Transfers of financial instruments
(22,592)
(1,543)
808
1,547
21,784
(4)
—
—
–  transfers from stage 1 to stage 2
(20,953)
75
20,953
(75)
—
—
—
—
–  transfers from stage 2 to stage 1
16,384
(1,502)
(16,384)
1,502
—
—
—
—
–  transfers from stage 3
1,509
(189)
3,920
(543)
(5,429)
732
—
—
–  transfers to stage 3
(19,532)
73
(7,681)
663
27,213
(736)
—
—
Net remeasurement of ECL arising from
stage transfers
—
1,610
—
(1,365)
—
(1,921)
—
(1,676)
Changes in risk parameters
—
(2,471)
—
285
—
31
—
(2,155)
Net new and further lending/
repayments
(33,623)
73
(8,470)
599
(15,825)
1,742
(57,918)
2,414
Assets written off
—
—
—
—
(788)
788
(788)
788
As at 31 December 2021
2,559,323
(11,979)
58,426
(4,386)
93,963
(10,157)
2,711,712
(26,522)
ECL charge for the year
(629)
Recoveries
705
Other
(107)
Change in expected credit losses
for the year
(31)
Assets written off
(788)
Change in expected credit losses
and other credit impairment
charges
(819)
As at 1 January 2020
2,704,526
(1,688)
53,554
(3,696)
67,094
(8,364)
2,825,174
(13,748)
Transfers of financial instruments :
(48,719)
(1,338)
19,262
791
29,457
547
—
—
–  transfers from stage 1 to stage 2
(39,480)
50
39,480
(50)
—
—
—
—
–  transfers from stage 2 to stage 1
16,123
(917)
(16,123)
917
—
—
—
—
–  transfers from stage 3
4,368
(492)
4,698
(585)
(9,066)
1,077
—
—
–  transfers to stage 3
(29,730)
21
(8,793)
509
38,523
(530)
—
—
Net remeasurement of ECL arising from
stage transfers
—
1,288
—
(2,622)
—
(3,972)
—
(5,306)
Changes in risk parameters
—
(7,867)
—
(1,905)
—
(622)
—
(10,394)
Net new and further lending/
repayments
(40,269)
(43)
(6,728)
1,980
(6,450)
309
(53,447)
2,246
Assets written off
—
—
—
—
(1,309)
1,309
(1,309)
1,309
As at 31 December 2020
2,615,538
(9,648)
66,088
(5,452)
88,792
(10,793)
2,770,418
(25,893)
ECL charge for the year
(12,145)
Recoveries
505
Other
(37)
Change in expected credit losses for the
year
(11,677)
Assets written off
(1,309)
Change in expected credit losses and
other credit impairment charges
(12,986)
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
89
Personal lending – credit risk profile by obligor grade for loans and advances to customers
Gross carrying amount
Allowance for ECL
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
ECL
Coverage
€000
€000
€000
€000
€000
€000
€000
€000
%
First lien residential mortgages
1,974,558
37,323
75,272
2,087,153
(10,896)
(2,835)
(6,799)
(20,530)
1.0
Not past due
1,971,017
21,394
38,226
2,030,637
(10,878)
(1,637)
(3,967)
(16,482)
0.8
Past due by:
less than 30 days
3,541
8,046
6,923
18,510
(18)
(553)
(781)
(1,352)
7.3
30 to 59 days
—
5,968
4,960
10,928
—
(350)
(540)
(890)
8.1
60 to 89 days
—
1,915
2,007
3,922
—
(295)
(170)
(465)
11.9
90 days and more
—
—
23,156
23,156
—
—
(1,341)
(1,341)
5.8
Other personal lending
176,623
12,456
13,962
203,041
(1,037)
(1,551)
(1,352)
(3,940)
1.9
Not past due
175,690
9,816
4,731
190,237
(1,032)
(1,227)
(516)
(2,775)
1.5
Past due by:
less than 30 days
933
1,743
1,742
4,418
(5)
(177)
(138)
(320)
7.2
30 to 59 days
—
650
914
1,564
—
(80)
(66)
(146)
9.3
60 to 89 days
—
247
328
575
—
(67)
(22)
(89)
15.5
90 days and more
—
—
6,247
6,247
—
—
(610)
(610)
9.8
At 31 December 2021
2,151,181
49,779
89,234
2,290,194
(11,933)
(4,386)
(8,151)
(24,470)
1.1
First lien residential mortgages
1,960,035
40,159
69,707
2,069,901
(8,861)
(3,753)
(6,905)
(19,519)
0.9
Not past due
1,954,135
30,120
29,505
2,013,760
(8,841)
(2,938)
(3,258)
(15,037)
0.7
Past due by:
less than 30 days
5,900
4,752
5,935
16,587
(20)
(366)
(354)
(740)
4.5
30 to 59 days
—
4,202
3,135
7,337
—
(385)
(170)
(555)
7.6
60 to 89 days
—
1,085
1,168
2,253
—
(64)
(106)
(170)
7.5
90 days and more
—
—
29,964
29,964
—
—
(3,017)
(3,017)
10.1
Other personal lending
195,640
14,915
13,907
224,462
(756)
(1,668)
(1,443)
(3,867)
1.7
Not past due
194,170
11,932
4,522
210,624
(752)
(1,294)
(556)
(2,602)
1.2
Past due by:
less than 30 days
1,470
1,713
910
4,093
(4)
(155)
(78)
(237)
5.8
30 to 59 days
—
878
653
1,531
—
(129)
(23)
(152)
9.9
60 to 89 days
—
392
528
920
—
(90)
(26)
(116)
12.6
90 days and more
—
—
7,294
7,294
—
—
(760)
(760)
10.4
At 31 December 2020
2,155,675
55,074
83,614
2,294,363
(9,617)
(5,421)
(8,348)
(23,386)
1.0
Collateral and other credit enhancements
It is the bank’s practice to lend on the basis of the customer’s ability to meet their obligations out of their cash flow resources rather than
rely on the value of security offered. Depending on the customer’s standing and the type of product, facilities may be provided
unsecured. For other lending, a charge over collateral is obtained and considered in determining the credit decision and pricing. In the
event of a default, the bank may utilise the collateral as a source of repayment. Depending on its form, collateral can have a significant
financial effect in mitigating exposure to credit risk.
The principal collateral types are as follows:
•In the personal sector, mortgages over residential properties, cash and securities; and
•In the commercial real estate sector, charges over the properties being financed.
The bank is required to implement guidelines on the acceptability of specific classes of collateral or credit risk mitigation, and determine
suitable valuation parameters. Such parameters are expected to be conservative, reviewed regularly and supported by empirical
evidence. Security structures and legal covenants are required to be subject to regular review to ensure that they continue to fulfil their
intended purpose and remain in line with local market practice.
The tables in the following pages show loans and advances to customers by level of collateral. The collateral measured in the tables
below consists of fixed first charges on real estate and charges over cash and marketable financial instruments but excludes any
collateral held in the form of guarantees. The values in the tables represent the expected market value on an open market basis; no
adjustment has been made to the collateral for any expected costs of recovery. Cash is valued at its nominal value and marketable
securities at their fair value.
The loan-to-value (‘LTV’) ratios presented are calculated by directly associating loans and advances with the collateral that individually
and uniquely supports each facility.
Where collateral assets are shared by multiple loans and advances, the collateral value is pro-rated across the loans and advances
protected by the collateral.
Notes on the financial statements
90
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Wholesale lending to customers
Wholesale lending includes both small business owners served through Retail Business Banking to the financing of corporate and non-
financial institutions both from a working capital perspective and investing primarily in income producing assets and, to a lesser extent
construction and development of the same. The business focuses mainly on traditional core asset classes such as retail, offices, light
industrial and residential building projects.
The collateral measured in the tables in following pages consists of fixed first charges on real estate. The values in the tables represent
the expected market value on an open market basis. Loans shown as not collateralised or partially collateralised may also benefit from
other forms of credit mitigants.
Other types of collateral which are commonly taken for corporate and commercial lending, such as unsupported guarantees and floating
charges over the assets of a customer’s business, are not measured in the tables below. While such mitigants have value, often providing
rights in insolvency, their assignable value is not sufficiently certain and they are therefore assigned no value for disclosure purposes.
The value of commercial real estate collateral is determined by using a combination of professional and internal valuations and physical
inspections. Due to the complexity of valuing collateral for commercial real estate, local valuation policies determine the frequency of
review on the basis of local market conditions. Revaluations are sought with greater frequency as concerns over the performance of the
collateral or the direct obligor increase.
Wholesale lending – loans and advances to customers by level of collateral by stage distribution
Gross
carrying
amount
Allowance for ECL
ECL coverage
€000
€000
%
Stage 1
Not collateralised
171,258
(966)
0.6
Fully collateralised 
472,699
(1,482)
0.3
–  less than or equal to 50% 
156,130
(1,177)
0.8
–  51% to 75% 
15,996
(177)
1.1
–  76% to 90% 
10,009
(62)
0.6
–  91% to 100% 
290,564
(66)
—
Partially collateralised
–  greater than 100% LTV
35,649
(359)
1.0
–  of which: Collateral value
9,080
Total
679,606
(2,807)
0.4
Stage 2
Not collateralised
83,195
(4,531)
5.4
Fully collateralised 
119,473
(6,643)
5.6
–  less than or equal to 50%
112,255
(6,447)
5.7
–  51% to 75% 
2,073
(77)
3.7
–  76% to 90%
58
—
—
–  91% to 100% 
5,087
(119)
2.3
Partially collateralised
–  greater than 100% LTV
3,112
(55)
1.8
–  of which: Collateral value
434
Total
205,780
(11,229)
5.5
Stage 3
Not collateralised
43,677
(9,632)
22.1
Fully collateralised 
24,838
(5,107)
20.6
–  less than or equal to 50%
18,544
(4,780)
25.8
–  51% to 75% 
5,571
(98)
1.8
–  76% to 90% 
658
(171)
26.0
–  91% to 100% 
65
(58)
89.2
Partially collateralised
–  greater than 100% LTV
10,662
(4,787)
44.9
–  of which: Collateral value
3,276
Total
79,177
(19,526)
24.7
At 31 December 2021
964,563
(33,562)
3.5
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
91
Wholesale lending – loans and advances to customers by level of collateral by stage distribution (continued)
Gross
carrying
amount
Allowance for ECL
ECL coverage
€000
€000
%
Stage 1
Not collateralised
233,098
(2,011)
0.9
Fully collateralised 
458,016
(1,809)
0.4
–  less than or equal to 50%
126,454
(1,432)
1.1
–  51% to 75% 
10,234
(88)
0.9
–  76% to 90% 
25,997
(163)
0.6
–  91% to 100% 
295,331
(126)
—
Partially collateralised
–  greater than 100% LTV
16,701
(163)
1.0
–  of which: Collateral value
6,064
Total
707,815
(3,983)
0.6
Stage 2
Not collateralised
78,680
(4,565)
5.8
Fully collateralised 
192,547
(9,028)
4.7
–  less than or equal to 50%
160,991
(7,031)
4.4
–  51% to 75% 
23,696
(1,691)
7.1
–  76% to 90%
1,337
(102)
7.6
–  91% to 100% 
6,523
(204)
3.1
Partially collateralised
–  greater than 100% LTV
3,786
(122)
3.2
–  of which: Collateral value
1,236
Total
275,013
(13,715)
5.0
Stage 3
Not collateralised
10,916
(5,680)
52.0
Fully collateralised 
30,782
(9,260)
30.1
–  less than or equal to 50%
21,854
(3,698)
16.9
–  51% to 75% 
8,252
(5,333)
64.6
–  76% to 90% 
628
(192)
30.6
–  91% to 100% 
48
(37)
77.1
Partially collateralised
–  greater than 100% LTV
5,684
(3,885)
68.3
–  of which: Collateral value
2,719
Total
47,382
(18,825)
39.7
At 31 December 2020
1,030,210
(36,523)
3.5
Wholesale lending – loans and advances to customers by level of collateral by obligor grade
Gross carrying
amount
Allowance
for ECL
ECL coverage
€000
€000
%
CRR 1 to 8
Not collateralised
254,453
(5,497)
2.2
Fully collateralised 
592,172
(8,125)
1.4
–  less than or equal to 50%
268,385
(7,624)
2.8
–  51% to 75% 
18,069
(254)
1.4
–  76% to 90% 
10,067
(62)
0.6
–  91% to 100% 
295,651
(185)
0.1
Partially collateralised
–  greater than 100% LTV
38,761
(414)
1.1
–  of which: Collateral value
9,514
Total
885,386
(14,036)
1.6
CRR 9 to 10
Not collateralised
43,677
(9,632)
22.1
Fully collateralised 
24,838
(5,107)
20.6
–  less than or equal to 50%
18,544
(4,780)
25.8
–  51% to 75% 
5,571
(98)
1.8
–  76% to 90% 
658
(171)
26.0
–  91% to 100% 
65
(58)
89.2
Partially collateralised
–  greater than 100% LTV
10,662
(4,787)
44.9
–  of which: Collateral value
3,276
Total
79,177
(19,526)
24.7
At 31 December 2021
964,563
(33,562)
3.5
Notes on the financial statements
92
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Wholesale lending – loans and advances to customers by level of collateral by obligor grade (continued)
Gross  carrying
amount
Allowance for ECL
ECL coverage
€000
€000
%
CRR 1 to 8
Not collateralised
311,778
(6,576)
2.1
Fully collateralised 
650,563
(10,837)
1.7
–  less than or equal to 50%
287,445
(8,463)
2.9
–  51% to 75% 
33,930
(1,779)
5.2
–  76% to 90% 
27,334
(265)
1.0
–  91% to 100% 
301,854
(330)
0.1
Partially collateralised
–  greater than 100% LTV
20,487
(285)
1.4
–  of which: Collateral value
7,300
Total
982,828
(17,698)
1.8
CRR 9 to 10
Not collateralised
10,916
(5,680)
52.0
Fully collateralised 
30,782
(9,260)
30.1
–  less than or equal to 50%
21,854
(3,698)
16.9
–  51% to 75% 
8,252
(5,333)
64.6
–  76% to 90% 
628
(192)
30.6
–  91% to 100% 
48
(37)
77.1
Partially collateralised
–  greater than 100% LTV
5,684
(3,885)
68.3
–  of which: Collateral value
2,719
Total
47,382
(18,825)
39.7
At 31 December 2020
1,030,210
(36,523)
3.5
Personal lending to customers
The bank provides a broad range of secured and unsecured personal lending products to meet customer needs. Personal lending
includes advances to customers for asset purchases, such as residential property, where the loans are secured by the assets acquired.
The bank also offers loans secured on existing assets, such as first charges on residential property, and unsecured lending products, such
as overdrafts, credit cards and car loans.
The collateral measured in the following tables consists of fixed charges held over borrowers’ real estate. The value of collateral is
determined using professional valuations and excludes any adjustment for obtaining and selling the collateral. Loans shown as not
collateralised or partially collateralised may also benefit from other forms of credit mitigants.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
93
Personal Lending – residential mortgages, loans and advances by level of collateral by stage distribution
Gross carrying
amount
Allowance for
ECL
ECL coverage
€000
€000
%
Stage 1
Not collateralised
77,847
(571)
0.7
Fully collateralised 
2,069,865
(11,335)
0.5
–  less than or equal to 50%
867,098
(4,257)
0.5
–  51% to 75% 
860,947
(4,926)
0.6
–  76% to 90% 
339,720
(2,051)
0.6
–  91% to 100% 
2,100
(101)
4.8
Partially collateralised :
–  greater than 100% LTV
3,469
(27)
0.8
–  of which: Collateral value
1,192
Total
2,151,181
(11,933)
0.6
Stage 2
Not collateralised
6,696
(1,203)
18.0
Fully collateralised 
42,705
(3,139)
7.4
–  less than or equal to 50%
27,378
(779)
2.9
–  51% to 75% 
13,484
(2,013)
14.9
–  76% to 90% 
1,443
(296)
20.5
–  91% to 100% 
400
(51)
12.8
Partially collateralised:
–  greater than 100% LTV
378
(44)
11.6
–  of which: Collateral value
104
Total
49,779
(4,386)
8.8
Stage 3
Not collateralised
1,570
(1,025)
65.3
Fully collateralised 
87,635
(7,105)
8.1
–  less than or equal to 50%
57,437
(1,515)
2.6
–  51% to 75%
24,397
(3,842)
15.7
–  76% to 90%
5,068
(1,386)
27.3
–  91% to 100%
733
(362)
49.4
Partially collateralised:
–  greater than 100% LTV
29
(21)
72.4
–  of which: Collateral value
20
Total
89,234
(8,151)
9.1
At 31 December 2021
2,290,194
(24,470)
1.1
Stage 1
Not collateralised
85,140
(420)
0.5
Fully collateralised 
2,067,256
(9,191)
0.4
–  less than or equal to 50%
736,056
(2,687)
0.4
–  51% to 75% 
779,938
(3,657)
0.5
–  76% to 90% 
548,111
(2,831)
0.5
–  91% to 100% 
3,151
(16)
0.5
Partially collateralised :
–  greater than 100% LTV
3,279
(6)
0.2
–  of which: Collateral value
1,091
Total
2,155,675
(9,617)
0.4
Stage 2
Not collateralised
8,042
(1,257)
15.6
Fully collateralised 
46,500
(4,117)
8.9
–  less than or equal to 50%
29,787
(747)
2.5
–  51% to 75% 
10,556
(1,798)
17.0
–  76% to 90% 
5,454
(1,441)
26.4
–  91% to 100% 
703
(131)
18.6
Partially collateralised:
–  greater than 100% LTV
532
(47)
8.8
–  of which: Collateral value
162
Total
55,074
(5,421)
9.8
Stage 3
Not collateralised
1,661
(1,011)
60.9
Fully collateralised 
81,931
(7,321)
8.9
–  less than or equal to 50%
45,419
(924)
2.0
–  51% to 75%
23,018
(3,121)
13.6
–  76% to 90%
12,404
(3,080)
24.8
–  91% to 100%
1,090
(196)
18.0
Partially collateralised:
–  greater than 100% LTV
22
(16)
72.7
–  of which: Collateral value
14
Total
83,614
(8,348)
10.0
At 31 December 2020
2,294,363
(23,386)
1.0
Notes on the financial statements
94
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Personal lending – residential mortgages, loans and advances  by level of collateral by past due days
Gross carrying
amount
Allowance for
ECL
ECL coverage
€000
€000
%
Less than 30 days past due
Not collateralised
84,543
(2,045)
2.4
Fully collateralised 
2,155,389
(18,796)
0.9
–  less than or equal to 50%
921,528
(5,840)
0.6
–  51% to 75% 
886,852
(9,313)
1.1
–  76% to 90% 
344,331
(3,273)
1.0
–  91% to 100% 
2,678
(370)
13.8
Partially collateralised
–  greater than 100% LTV
3,870
(88)
2.3
–  of which: Collateral value
1,314
Total
2,243,802
(20,929)
0.9
30 days to 89 days past due
Not collateralised
696
(213)
30.6
Fully collateralised 
16,293
(1,377)
8.5
–  less than or equal to 50%
10,077
(235)
2.3
–  51% to 75% 
4,824
(796)
16.5
–  76% to 90% 
1,155
(272)
23.6
–  91% to 100% 
237
(74)
31.2
Partially collateralised
–  greater than 100% LTV
—
—
—
–  of which: Collateral Value
—
Total
16,989
(1,590)
9.4
90 days past due or more
Not collateralised
874
(541)
61.9
Fully collateralised 
28,523
(1,406)
4.9
–  less than or equal to 50%
20,308
(476)
2.3
–  51% to 75% 
7,152
(672)
9.4
–  76% to 90% 
745
(188)
25.2
–  91% to 100% 
318
(70)
22.0
Partially collateralised
–  greater than 100% LTV
6
(4)
66.7
–  of which: Collateral value
2
Total
29,403
(1,951)
6.6
At 31 December 2021
2,290,194
(24,470)
1.1
Less than 30 days past due
Not collateralised
92,930
(1,864)
2.0
Fully collateralised
2,148,342
(16,693)
0.8
–  less than or equal to 50%
784,727
(3,952)
0.5
–  51% to 75%
800,636
(7,082)
0.9
–  76% to 90%
558,998
(5,476)
1.0
–  91% to 100% 
3,981
(183)
4.6
Partially collateralised :
–  greater than 100% LTV
3,792
(59)
1.6
–  of which: Collateral value
1,251
Total
2,245,064
(18,616)
0.8
30 days to 89 days past due
Not collateralised
884
(235)
26.6
Fully collateralised 
11,126
(756)
6.8
–  less than or equal to 50%
7,743
(135)
1.7
–  51% to 75% 
2,260
(314)
13.9
–  76% to 90% 
970
(257)
26.5
–  91% to 100% 
153
(50)
32.7
Partially collateralised
–  greater than 100% LTV
31
(2)
6.5
–  of which: Collateral value
9
Total
12,041
(993)
8.2
90 days past due or more
Not collateralised
1,029
(589)
57.2
Fully collateralised 
36,219
(3,180)
8.8
–  less than or equal to 50%
18,792
(271)
1.4
–  51% to 75% 
10,616
(1,180)
11.1
–  76% to 90% 
6,001
(1,619)
27.0
–  91% to 100% 
810
(110)
13.6
Partially collateralised
–  greater than 100% LTV
10
(8)
80.0
–  of which: Collateral value
7
Total
37,258
(3,777)
10.1
At 31 December 2020
2,294,363
(23,386)
1.0
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
95
The bank typically does not hold collateral against financial assets measured at fair value through profit or loss, financial investments and
loans to banks, and no such collateral was held at 31 December 2021 and 2020.
Forward-looking information incorporated in the ECL model
ECL impairment allowances recognised in the financial statements reflect the effect of a range of possible economic outcomes,
calculated on a probability-weighted basis. The recognition and measurement of ECL involves the use of significant judgement and
estimation. It is necessary to formulate multiple forward-looking economic forecasts and incorporate them into the ECL estimates. The
bank uses a standard framework to form economic scenarios to reflect assumptions about future economic conditions, supplemented
with the use of management judgement, which may result in using alternative or additional economic scenarios and/or management
adjustments.
The Covid-19 outbreak dominated the political and economic landscape through the financial years ended 31 December 2020. The twin
shocks of a public health emergency and the resultant economic fallout have been felt around the world during 2020. The sharp
contraction in economic activity experienced in both global and local economies has had varying effects on different industry sectors,
with borrowers operating or employed within such industry sectors experiencing financial difficulties. Measures designed to soften the
extent of the damage to economic activity and the labour market were implemented by the Maltese government, as well as European
and local regulatory authorities. Such measures included income support to households, funding support to businesses (including
through government guaranteed schemes), as well as the granting of general public moratoria on capital and/or interest repayments in
response to the outbreak of the pandemic.
The current financial year was characterised by strong economic growth after a complicated winter, as the global and local economies
bounced back, particularly in spring and summer, resulting in abnormally high growth rates principally due to a spending spree unfolding
as facilitated by successful vaccination campaigns. The strong growth rates during 2021 reflect the dynamics throughout the year, but
also the low base value in 2020 due to the economic downturn. This growth is set to significantly slow down as the pandemic situation
worsens throughout winter, alongside ongoing supply-chain issues. The autumn wave of infections towards the end of the year was
stronger than expected, resulting in stricter government measures. The base assumption is that these measures remain focused on the
unvaccinated, as current vaccines are expected to provide a degree of efficacy against the Omicron variant, thus avoiding the need for
prolonged, full-scale lockdowns in the euro zone. The rise in infections is being tackled by governments using measures that aim to boost
vaccination rates and some level of imposed social distancing rolled out across countries, which will affect economic activity. However, it
is forecasted that the effect of the pandemic on aggregate activity will be more contained than in previous outbreaks. The unwinding of
government support schemes and regulatory relief measures introduced as a response to the outbreak of Covid-19 also commenced
during the current financial year, taking cognisance of the economic developments.
Uncertainty remains with respect to the potential economic impacts of epidemiological assumptions in relation to the pandemic as
different regions emerge from the pandemic at different speeds, the progress registered from continued roll-outs of vaccination
programmes, the efficacy of such vaccines/boosters upon the emergence of new virus strains, further restrictions imposed at national
level by various governments as events unfold, and the unwinding of government support schemes and regulatory relief measures.   
The main downside and upside risks to the baseline are still centred on developments surrounding the coronavirus pandemic. Although
the baseline outlook foresees the economy weathering the winter outbreak, the pandemic might linger or consumer behaviour may
remain cautious, preventing economic activity from fully rebounding to normal levels.
The significant changes in economic and market drivers, customer behaviours and government actions caused by Covid-19 have also
impacted the performance of ECL models, since the severity of projections of macroeconomic variables being forecasted in response to
the pandemic are outside the historical observations on which the ECL models have been built and calibrated. In this regard, a significant
judgement within the bank’s estimation of ECL impairment allowances as at 31 December 2020 and 2021 relates to the determination of
forward-looking scenarios reflecting potential future economic conditions under different scenarios and their impact on PDs and LGDs.
Methodology
HSBC has developed a globally consistent methodology for the application of forward economic guidance (‘FEG’) into the calculation of
ECL by incorporating macroeconomic variables into the estimation of the term structure of probability of default (‘PD’) and loss given
default (‘LGD’).
In accordance with the HSBC Group’s standard framework for incorporating forward-looking information into the ECL model, the bank
has adopted the use of three scenarios, representative of forecast economic conditions, sufficient to calculate unbiased expected losses.
They represent a ’most likely outcome’ (the Central scenario), and two, less likely ’outer’ scenarios, referred to as the Upside and
Downside scenarios. Each outer scenario is generally in normal circumstances consistent with a probability of 10%, while the Central
scenario is typically assigned the remaining 80%, according to the decision of the bank’s senior management. This weighting scheme is
deemed appropriate in normal circumstances for the unbiased estimation of ECL. Key scenario assumptions are set using external
forecasts, helping to ensure that the IFRS 9 scenarios are unbiased and maximise the use of independent information. The Central,
Upside and Downside scenarios selected with reference to external forecast distributions using the above approach are termed the
‘consensus economic scenarios’.
For the Central scenario, key assumptions such as GDP growth, inflation, unemployment and policy interest rates are calibrated using a
panel of external forecasts (commonly referred to as consensus forecasts). The Upside and Downside scenarios are designed to be
cyclical, in that the forecasted macroeconomic variables usually revert back to the Central scenario after the first three years. The
approach centres on GDP growth rate forecasts. The remaining variables are then forecasted subject to restrictions to enable consistency
with GDP forecasts.
The maximum divergence of GDP growth from the Central scenario is generally calibrated using the 10th and the 90th percentile of the
entire distribution of forecast outcomes.
To generate the three economic scenarios, a shortlist of the most relevant upside and downside economic and political risks is
developed. This is known as the ‘economic risk assessment’. For the Central scenario, a predefined set of economic paths is taken as the
average of different forecast distributions. Paths for the two outer scenarios are benchmarked to the Central scenario and reflect the
economic risk assessment. Scenarios are representative of the probability weighting scheme, informed by the current economic outlook,
data analysis of past recessions, and transitions in and out of recession. The key assumptions made, and the accompanying paths,
represent the ‘best estimate’ of a scenario at a specified probability.
Notes on the financial statements
96
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
The Upside and Downside scenarios are generated at the year-end and are only updated during the year if economic conditions change
significantly. The Central scenario is generated every quarter.
In response to the outbreak of the Covid-19 pandemic, HSBC performed an assessment in order to determine whether the use of the
standard framework as described above remains appropriate in light of the extraordinary economic conditions being experienced on a
global scale as well as the significant increase in the inherent level of uncertainty which currently exists around future economic
conditions.
In this respect, in addition to the estimated impact of the pandemic incorporated in the three scenarios contemplated by the standard
framework, the impact was also incorporated in estimated credit loss allowances through the incorporation of a fourth scenario, namely
the Additional Downside scenario, which was designed to capture the potential occurrence of a more severe tail-end macroeconomic
scenario by reference to scenarios used for stress testing purposes.
The Additional Downside scenario was calibrated by reference to a scenario featuring a severe and prolonged economic contraction
developed by an external vendor. In this respect, the Additional Downside scenario represents the 4th percentile of the entire distribution
of forecast outcomes as estimated by the external vendor. In order to align the distribution of forecast outcomes used by the external
vendor to the distribution utilised by the bank, the shocks applied to the external vendor’s baseline scenario to generate the 4th percentile
scenario are then translated to equivalent shocks applied to the bank’s Central scenario under the consensus forecasts.
As a result, the four scenarios used in the bank’s ECL model consider differing severity and duration assumptions relating to the global
pandemic, including assumptions in respect of the speed at which emergence from the pandemic occurs and economic activity returns
to pre-Covid-19 levels. These assumptions included probability-weighted shocks to annual GDP and consequential impacts on
unemployment and other economic variables, with differing economic recovery assumptions. The probability weights assigned to each of
the four scenarios have been recalibrated accordingly, as shown in the following tables, such that the Central scenario is assigned a
probability weight of 60%, with the Downside and Additional Downside scenarios assigned a combined probability weight of 30%.
As highlighted previously, the impact of the pandemic on the duration  and severity of the economic impacts remains uncertain,
especially in light of potential subsequent waves of infection or new virus strains, the effectiveness of vaccinations in slowing and
eventually reversing the spread of new virus strains, as well as the unwinding of government support schemes and local political
decisions.
Based on the above, the estimation of credit loss allowances as at 31 December 2020 and 2021 required an elevated level of subjectivity
and expert judgement. Despite the recovery in economic conditions during 2021, principally driven by the effective implementation of
vaccination programmes addressing the mutation of Covid-19 variants, ECL estimates remain subject to a high degree of uncertainty. In
this respect, judgements applied by management in estimating ECL continue to reflect a degree of caution, both in the selection of
economic scenarios and in terms of the calibration of scenario weightings.
In addition, given that the unprecedented economic conditions being experienced as a result of the Covid-19 pandemic fall outside
historical experience, post-model adjustments are also applied by management to assess the reasonableness of, and to enhance,
modelled ECL by reference to expert judgement. In this respect, a significant portion of the increase in ECL allowances determined as at
31 December 2020, reflecting elevated forward-looking PDs and LGDs to capture the extent of economic uncertainty experienced in the
aftermath of the outbreak of the pandemic, has been retained as an overlay within the estimation of ECL allowances on the bank’s
lending exposures as at 31 December 2021.
How economic scenarios are reflected in the wholesale calculation of ECL
In line with HSBC’s methodology, for the wholesale portfolio, FEG is incorporated into the calculation of ECL through the estimation of
the term structure of PD and LGD.
For PDs, the correlation of FEG to default rates is considered. In this respect, forward-looking PDs are approximated by using a proxy
country’s PDs and macroeconomic paths, shifted by a scalar. A suitable proxy is selected using the Bhattacharyya methodology which
compares various proxy sites’ principal component macroeconomic variables to local variables to determine the most suitable site. The
scalar is then calculated, which is intended to capture the difference between the proxy and local sensitivities to economic shocks.
For the LGD calculation, the correlation of FEG, derived from the assumed macroeconomic paths of the proxy site, to collateral values,
which are in turn derived from the bank’s data, is taken into account.
For credit impaired loans, LGD estimates take into account independent recovery valuations provided by external consultants, or internal
forecasts corresponding to anticipated economic conditions and individual company conditions. In estimating the ECL on credit impaired
loans that are individually considered not to be significant, the model incorporates forward economic guidance proportionate to the
probability-weighted outcome and the Central scenario outcome for individually significant stage 3 loans.
The following table describes key macroeconomic variables, reflecting those used by the proxy site, and the probabilities assigned in the
consensus Central, Upside, Downside and Additional Downside scenarios.
As part of the periodic scenario review performed at regional level, the calibration of probability weights is also reviewed, on the basis of
expert judgement, to ensure that these are appropriate compared to ongoing economic developments. As can be observed from the
tables below, the assigned probability weights at 31 December 2021 are more conservative compared to the assigned probability weights
at 31 December 2020. Although the combined probability assigned to the Downside and Additional Downside scenarios remained
constant, more weight is being assigned to the Additional Downside scenario at 31 December 2021, reflecting a higher degree of caution
in view of the waves of infection observed towards the end of the year. 
Consensus scenarios (average 2022-2026)
Wholesale lending
Central
scenario
Upside
scenario
Downside
scenario
Additional
downside
scenario
Real GDP Growth rate (%)
2.5
3.9
1.4
1.7
Consumer price index (%)
2.3
2.7
1.9
0.4
Unemployment (%)
4.3
3.8
4.8
6.7
Short-term interest rate (%)
1.2
1.2
0.2
0.6
House price index (%)
3.5
4.7
1.1
(3.8)
Probability (%)
60.0
10.0
15.0
15.0
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
97
Consensus scenarios (average 2021-2025)
Wholesale lending
Central
scenario
Upside
scenario
Downside
scenario
Additional
downside
scenario
Real GDP Growth rate (%)
2.8
4.0
1.7
1.9
Consumer price index (%)
1.8
2.2
1.3
0.0
Unemployment (%)
5.6
4.9
6.4
8.5
Short-term interest rate (%)
0.2
0.2
0.1
0.3
House price index (%)
1.9
3.6
(0.7)
(2.3)
Probability (%)
60.0
10.0
20.0
10.0
The tables above show a marginal worsening of the forecasted macroeconomic variables under each of the scenarios when compared to
those prevailing as at 31 December 2020, other than in respect of the unemployment rate, where a more substantial improvement is
being forecasted compared to those as at 31 December 2020.
The five year average real GDP growth rate is marginally lower than that forecasted as at 31 December 2020. This is attributable to the
relative decrease in the real GDP growth rate for the first year of the forecast five year period as at 31 December 2021 compared to the
previous year end due to the pronounced economic recovery experienced during 2021 relative to the significant drop in real GDP as a
result of the outbreak of the Covid-19 pandemic during 2020.
As disclosed in the table below, under the Central scenario GDP is expected to grow by 5.0% in the first year of projections as at
31 December 2021, relative to an expected increase in real GDP of 5.6% in the first year of projections as at 31 December 2020.
In addition, the actual economic recovery during 2021 was more pronounced than originally expected, principally due to the effective roll-
out of vaccination programmes. As reflected in the table below, an actual real GDP growth rate of 7.7% was registered during 2021,
compared to an expected increase in real GDP growth rate of 5.6% under the Central scenario as at 31 December 2020.
In this context, under the Central scenario, the real GDP is assumed to attain pre-Covid-19 levels in 2022, compared to the prior year
expectation of such economic recovery by 2023. Under the Additional Downside scenario, the real GDP is assumed to attain pre-Covid-19
levels in 2024, compared to the prior year expectation of such economic recovery beyond 2025.
This resulted in an improvement in outlook in respect of the unemployment rate, with a five year average unemployment rate of 4.3%
being forecasted as at 31 December 2021, compared to a five year average unemployment rate of 5.6% forecasted as at 31 December
2020.
The real GDP growth rates assumed under each scenario are disclosed in the table below.
Real GDP Growth rates
Wholesale lending
Parameters as at 31 December 2021
Central
scenario
Upside
scenario
Downside
scenario
Additional
downside
scenario
2021: Annual average growth rate (%)
7.7
7.7
7.7
7.7
2022: Annual average growth rate (%)
5.0
7.1
3.2
(0.9)
2023: Annual average growth rate (%)
2.1
5.1
(0.3)
1.6
2024: Annual average growth rate (%)
1.9
3.7
0.5
3.0
Five year average growth  (%)
2.5
3.9
1.4
1.7
Parameters as at 31 December 2020
2020: Annual average growth rate (%)
(11.0)
(11.0)
(11.0)
(11.0)
2021: Annual average growth rate (%)
5.6
9.4
2.4
(0.8)
2022: Annual average growth rate (%)
2.3
4.6
0.0
3.3
2023: Annual average growth rate (%)
2.3
2.3
2.3
2.4
Five year average growth  (%)
2.8
4.0
1.7
1.9
How economic scenarios are reflected in the retail calculation of ECL
With respect to the retail portfolio, the impact of economic scenarios on PDs is modelled at a portfolio level. Historical relationships
between observed default rates and macroeconomic variables are integrated into IFRS 9 ECL estimates by leveraging economic response
models. The impact of these scenarios on PDs is modelled over a period equal to the remaining maturity of underlying assets.
For the mortgage portfolio, the impact on LGD is modelled by forecasting loan-to-value (‘LTV’) profiles up to the point of default. In this
regard, LTV profiles are forecasted for the remaining maturity of the asset for exposures within stages 1 and 2 by leveraging national level
forecasts of the house price index and applying the corresponding LGD expectation. However, no impact on LGD is modelled for stage 3
exposures to reflect the fact that these are already defaulted.
The key macroeconomic variables used for the retail portfolio are specific to Malta and have been calibrated in line with the methodology
explained above. During the financial year ended 31 December 2020, the annual monitoring assessment performed by the local group in
respect of correlations between observed default rates and key macroeconomic variables resulted in a change in the key macroeconomic
variable from real GDP growth rates to unemployment rates in all retail portfolios other than for credit cards. No other changes were
effected during the financial year ended 31 December 2021.
The following table describes key macroeconomic variables and the probabilities assigned in the consensus Central, Upside, Downside
and Additional Downside scenarios. The calibration of probability weights for the retail portfolios was also reviewed and aligned to the
probability weights assigned in respect of the wholesale portfolio. In this respect, the combined probability assigned to the Downside and
Additional Downside scenarios at 31 December 2021 remained consistent compared to 31 December 2020, with more weight being
assigned to the Additional Downside scenario at 31 December 2021, reflecting a higher degree of caution in view of the waves of
infection observed towards the end of the year.
Notes on the financial statements
98
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Consensus scenarios (average 2022-2026)
Retail lending
Central
scenario
Upside
scenario
Downside
scenario
Additional
downside
scenario
Real GDP Growth rate (%)
3.3
4.0
2.5
2.2
House price index (%)
5.5
6.3
4.6
3.5
Unemployment (%)
3.9
3.1
4.7
6.9
Probability (%)
60.0
10.0
15.0
15.0
Consensus scenarios (average 2021-2025)
Retail lending
Central
scenario
Upside
scenario
Downside
scenario
Additional
downside
scenario
Real GDP Growth rate (%)
4.3
5.1
3.3
3.2
House price index (%)
4.8
7.0
2.6
(2.8)
Unemployment (%)
4.3
3.7
5.1
7.1
Probability (%)
60.0
10.0
20.0
10.0
As can be observed in the tables below, the average unemployment rates forecasted under the Downside and Additional Downside
scenarios, to which a combined probability weight of 30% is assigned, reflect a significant increase in the national unemployment rate
during the first three years included in the forecast five year period, as compared to the other scenarios. The elevated unemployment
rates assumed in these scenarios have been developed to capture different assumptions in respect of the economic recovery in response
to the outbreak of the Covid-19 pandemic. In this respect, the recovery period for economic activity to return to pre-Covid-19 levels is
expected to take longer under these scenarios.
The 2021 base annual average unemployment rate of 4.0% reflects the increase in unemployment experienced as a result of the outbreak
of the Covid-19 pandemic relative to an unemployment rate of 3.4% during 2019. Under the Central scenario, which is assigned a
probability weight of 60% for the purpose of the ECL calculation, the annual average unemployment rate during 2022 is expected to
remain in line with the closing unemployment rate experienced during 2021.
As disclosed in the table below, under the Central scenario the unemployment rate is expected to stand at 4.0% in the first year of
projections as at 31 December 2021, relative to an expected unemployment rate of 4.7% in the first year of projections as at
31 December 2020.
In this respect, as show in the table below, an unemployment rate of 4.0% was registered during 2021, compared to an expected
unemployment rate of 4.7% under the Central scenario as at 31 December 2020. This is principally driven by the ongoing implementation
of government support schemes, which has maintained local unemployment rates at relatively subdued levels.
The economic activity under the Central scenario is expected to return to pre-Covid-19 levels by 2022, which is consistent with the prior
year expectation in respect of such economic recovery. Under the Additional Downside scenario, the real GDP is assumed to reach pre-
Covid-19 levels in 2024, compared to the prior year expectation of such economic recovery by 2023.
Unemployment rates
Retail lending
Parameters as at 31 December 2021
Central
scenario
Upside
scenario
Downside
scenario
Additional
downside
scenario
2021: Annual average rate (%)
4.0
4.0
4.0
4.0
2022: Annual average rate (%)
4.0
2.7
5.5
6.5
2023: Annual average rate (%)
3.8
2.4
5.6
8.0
2024: Annual average rate (%)
3.9
3.0
4.7
8.1
Five year average rate  (%)
3.9
3.1
4.7
6.9
Parameters as at 31 December 2020
2020: Annual average rate (%)
4.8
4.8
4.8
4.8
2021: Annual average rate (%)
4.7
2.9
6.5
7.3
2022: Annual average rate (%)
4.3
3.6
6.1
8.9
2023: Annual average rate (%)
4.1
4.1
4.1
7.4
Five year average rate  (%)
4.3
3.7
5.1
7.1
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
99
Economic scenarios sensitivity analysis of ECL estimates
The ECL outcome is sensitive to judgement and estimations made with regards to the formulation and incorporation of multiple forward-
looking economic conditions described above. As a result, management assessed and considered the sensitivity of the ECL outcome to
the forward-looking economic conditions as part of the ECL governance process.
As at 31 December 2021 and 2020, the sensitivity of the ECL outcome to the economic forecasts was assessed by recalculating the ECL
under the scenarios described above for the wholesale and retail portfolios, applying a 100% weighting to each scenario in turn.
In this respect, if the ECL outcome was estimated solely on the basis of the Central scenario, the credit loss allowances in respect of the
wholesale and retail portfolios would decrease by €1.7m (2020: €1.4m) and €1m (2020: €0.7m) respectively, compared to the weighted
average credit loss allowances estimated at year end. If the ECL outcome was estimated solely on the basis of the Downside scenario,
the credit loss allowances in respect of the wholesale and retail portfolios would increase by €0.7m (2020: €2.8m) and €0.7m (2020:
€3.4m) respectively, compared to the weighted average credit loss allowances estimated at year end. Similarly, if the ECL outcome was
estimated solely on the basis of the Additional Downside scenario, the credit loss allowances in respect of the wholesale and retail
portfolios would increase by €12m (2020: €9.5m) and €9.5m (2020: €10.5m) respectively, compared to the weighted average credit loss
allowances estimated at year end.
Treasury Bills and debt securities
Debt securities and other bills by rating agency (S&P Rating Agency) designation of the bank, are reported in the table below. Information
relating to the HSBC Life insurance business is disclosed in Note 4(f)(ii).
Debt securities and other bills by rating agency
Treasury
Bills
Debt
securities
Total
€000
€000
€000
AAA
—
213,878
213,878
AA- to AA+
—
111,294
111,294
A-
228,172
520,528
748,700
As at 31 December 2021
228,172
845,700
1,073,872
AAA
—
292,217
292,217
AA- to AA+
—
159,129
159,129
A-
256,302
426,106
682,408
As at 31 December 2020
256,302
877,452
1,133,754
Derivatives
The bank participates in transactions exposing it to counterparty credit risk. Counterparty credit risk is the risk of financial loss if the
counterparty to a transaction defaults before satisfactorily settling it and it arises principally from OTC derivatives. Transactions vary in
value by reference to a market factor such as interest rate, exchange rate or asset price. The bank manages its derivative market risk
positions principally through back-to-back derivative transactions with HSBC Group entities. The counterparty risk from derivative
transactions is taken into account when reporting the fair value of derivative positions. The adjustment to the fair value is known as the
credit value adjustment (‘CVA’).
For transactions with HSBC Group entities, the bank has an International Swaps and Derivatives Association (‘ISDA’) Master
Agreement in place. It provides the contractual framework within which dealing activity across a full range of OTC products is
conducted, and contractually binds both parties to apply close-out netting across all outstanding transactions covered by an agreement
if either party defaults or other pre-agreed termination events occur. In this respect, gross derivative assets amounting to €2,372,000
(2020: €597,000) are subject to enforceable netting agreement, however, they are not offset in the balance sheet as they do not meet
the on-balance sheet offsetting criteria for financial reporting purposes. Similarly, gross derivative liabilities amounting to €2,268,000
(2020: €5,947,000) are subject to enforceable netting agreement, however, they are not offset in the balance sheet as they do not meet
the on-balance sheet offsetting criteria for financial reporting purposes.
(c)Liquidity risk
Liquidity risk is the risk that the local group does not have sufficient financial resources to meet its financial obligations when they fall
due or will have to do so at excessive cost. This risk principally arises from mismatches in the timing of cash flows. Funding risk (a form
of liquidity risk) arises when the liquidity needed to fund illiquid asset positions cannot be obtained on the expected terms and when
required.
The objective of the local group’s liquidity and funding management is to ensure that all foreseeable funding commitments and deposit
withdrawals can be met when due. To this end, the local group maintains a diversified and stable funding base. The funding base
comprises core personal and corporate customer deposits as well as wholesale funding, whereas the local group’s liquidity position
comprises portfolios of highly liquid assets with the objective of enabling the local group to respond quickly and smoothly to unforeseen
liquidity requirements.
The bank maintains strong liquidity positions and manages the liquidity profiles of assets, liabilities and commitments with the objective
of ensuring that cash flows are balanced appropriately and that all anticipated obligations can be met when due.
The local group’s liquidity and funding management processes include:
•projecting cash flows by major currency under various stress scenarios considering the level of liquid assets necessary in relation
thereto;
•monitoring liquidity ratios against internal and regulatory requirements;
•maintaining a diverse range of funding sources with adequate back-up facilities;
•managing the concentration and profile of debt maturities;
•monitoring depositor concentration in order to avoid undue reliance on large individual depositors and ensure a satisfactory overall
funding mix; and
Notes on the financial statements
100
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
•maintaining liquidity and funding contingency plans. These plans identify early indicators of stress conditions and describe actions to
be taken in the event of difficulties arising from systematic or other crises while minimising adverse long-term implications for the
business.
Primary sources of funding
Customer deposits in the form of current accounts and savings deposits payable on demand or at short notice form a significant part of
the local group’s funding, and thus considerable importance is placed on maintaining their stability. For deposits, stability depends upon
maintaining depositor confidence in the local group’s capital strength and liquidity, and on competitive and transparent pricing.
Management of liquidity and funding risk
The bank’s liquidity and funding risk management framework employs two key measures to define, monitor and control the liquidity and
funding risk. The Net Stable Funding Ratio (‘NSFR’) is used to monitor the structural long-term funding position of the bank, and the
Liquidity Coverage Ratio (‘LCR’) metric is used to gauge the short-term resilience of the bank’s liquidity profile. The bank also monitors
the contractual maturity ladder, which provides insight into the extent to which the bank relies on maturity transformation in respect of
contractual cash flows. More precisely, the maturity ladder is used by the bank to determine the availability of liquid assets to meet the
liquidity gaps for diverse time horizons.
The bank’s ALCO focuses on the management process with respect to liquidity and funding risks. Compliance with established limits is
monitored by the local ALCO.
iLiquidity Coverage Ratio
The LCR metric is designed to promote the short-term resilience of a bank’s liquidity profile, and became a minimum regulatory standard
from 1 October 2015, under European Commission (‘EC’) Delegated Regulation 2015/61. It aims to ensure that a bank has sufficient
unencumbered high-quality liquid assets (‘HQLA’) to meet its liquidity needs in a 30-calendar-day liquidity stress scenario. HQLA consist
of cash or assets that can be converted into cash at little or no loss of value in the markets.
LCR year end levels for the bank
31 Dec
31 Dec
2021
2020
%
%
Actual LCR
379
232
Regulatory Minimum
100
100
During the financial years ended 31 December 2021 and 2020, the LCR was in excess of both the regulatory minimum and the risk
appetite thresholds set by the bank.
iiNet Stable Funding Ratio
The NSFR requires institutions to maintain sufficient stable funding relative to required stable funding, and reflects a bank’s long-term
funding profile (funding with a term of more than a year). It is designed to complement the LCR.
For 2020, the bank calculated the NSFR in line with Basel Committee on Banking Supervision publication 295. This calculation requires
various interpretations of the text, and therefore the bank’s NSFR may not be directly comparable with the ratios of other institutions.
During 2021, the bank updated its methodology for the calculation of the NSFR to conform with the provisions of the amendments to
Regulation (EU) No.575/2013, known as the Capital Requirements Regulation (‘CRR II’), which became effective as from 28 June 2021.
NSFR year end levels for the bank
31 Dec
31 Dec
2021
2020
%
%
Actual NSFR
199
166
Regulatory Minimum
100
100
During the financial years ended 31 December 2021 and 2020, the NSFR was in excess of both the regulatory minimum and the risk
appetite thresholds set by the bank.
iiiDepositor concentration
The LCR and NSFR metrics assume a stressed outflow based on a portfolio of depositors within different depositor segments. The validity
of these assumptions is challenged if the underlying depositors do not represent a large enough portfolio so that a depositor
concentration exists. The bank is exposed to term re-financing concentration risk if the current maturity profile results in future maturities
being overly concentrated in any defined period.
As at 31 December 2021 and 2020, the bank was within the risk appetite levels set for depositor concentration and term funding maturity
concentration.
ivContractual maturity ladder
The following is an analysis of financial assets and liabilities (excluding financial instruments relating to HSBC Life Assurance (Malta) Ltd)
by remaining contractual maturities at the reporting date. Information relating to HSBC Life insurance business is disclosed in Note
4(f)(iv):
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
101
Financial assets and liabilities (excluding financial instruments relating to HSBC Life Assurance (Malta) Ltd) by remaining contractual
maturities
Group
At 31 December 2021
Not more
than
3 months
Between
3 and 6
months
Between
6 months
and 1 year
Between
1 year and
5 years
More than
5 years
No maturity
date
Total
€000
€000
€000
€000
€000
€000
€000
Assets
Cash
26,781
—
—
—
—
—
26,781
Balances with Central Bank of Malta and Treasury
Bills
1,350,729
56,076
6,013
—
—
56,808
1,469,626
Items in the course of collection from other banks
4,453
—
—
—
—
—
4,453
Held for trading derivatives
1,205
777
1,128
1,525
5
—
4,640
Loans and advances to banks
385,200
141,908
35,954
50,000
—
—
613,062
Loans and advances to customers
194,794
16,850
13,345
408,577
2,563,159
—
3,196,725
Financial investments
60,615
37,973
129,039
512,496
105,577
35
845,735
Other assets
21,475
100
—
—
—
—
21,575
Total assets
2,045,252
253,684
185,479
972,598
2,668,741
56,843
6,182,597
Liabilities
Deposits by banks
1,397
—
—
—
—
—
1,397
Customer accounts
5,152,851
140,737
248,715
78,892
—
—
5,621,195
Items in course of transmission to other banks
21,573
—
—
—
—
—
21,573
Held for trading derivatives
1,144
739
1,105
1,525
79
—
4,592
Borrowings from group undertaking
—
—
—
—
60,000
—
60,000
Subordinated liabilities
—
—
—
—
62,000
—
62,000
Other liabilities
4,055
923
546
756
838
—
7,118
Total liabilities
5,181,020
142,399
250,366
81,173
122,917
—
5,777,875
Liquidity gap
(3,135,768)
111,285
(64,887)
891,425
2,545,824
Cumulative liquidity gap
(3,135,768)
(3,024,483)
(3,089,370)
(2,197,945)
347,879
At 31 December 2020
Assets
Cash
28,890
—
—
—
—
—
28,890
Balances with Central Bank of Malta and Treasury
Bills
773,935
126,189
16,049
—
—
51,616
967,789
Items in the course of collection from other banks
4,959
—
—
—
—
—
4,959
Held for trading derivatives
914
1,058
1,354
1,457
1,791
—
6,574
Loans and advances to banks
137,869
30,000
150,000
265,570
—
—
583,439
Loans and advances to customers
231,895
9,864
133,224
329,078
2,560,603
—
3,264,664
Financial investments
47,508
35,690
120,313
613,901
60,040
33
877,485
Other assets
29,508
270
—
—
—
—
29,778
Total assets
1,255,478
203,071
420,940
1,210,006
2,622,434
51,649
5,763,578
Liabilities
Deposits by banks
3,754
—
—
—
—
—
3,754
Customer accounts
4,710,462
154,626
298,769
109,104
—
—
5,272,961
Items in course of transmission to other banks
21,372
—
—
—
—
—
21,372
Held for trading derivatives
894
1,036
1,311
1,410
1,900
—
6,551
Subordinated liabilities
—
—
—
—
62,000
—
62,000
Other liabilities
4,340
1,178
995
2,203
857
—
9,573
Total liabilities
4,740,822
156,840
301,075
112,717
64,757
—
5,376,211
Liquidity gap
(3,485,344)
46,231
119,865
1,097,289
2,557,677
Cumulative liquidity gap
(3,485,344)
(3,439,113)
(3,319,248)
(2,221,959)
335,718
Notes on the financial statements
102
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Financial assets and liabilities by remaining contractual maturities
Bank
At 31 December 2021
Not more
than
3 months
Between
3 and 6
months
Between
6 months
and 1 year
Between
1 year and
5 years
More than
5 years
No maturity
date
Total
€000
€000
€000
€000
€000
€000
€000
Assets
Cash
26,781
—
—
—
—
—
26,781
Balances with Central Bank of Malta and Treasury
Bills
1,350,729
56,076
6,013
—
—
56,808
1,469,626
Items in the course of collection from other banks
4,453
—
—
—
—
—
4,453
Held for trading derivatives
1,205
777
1,128
1,525
5
—
4,640
Loans and advances to banks
385,200
141,908
35,954
50,000
—
—
613,062
Loans and advances to customers
194,794
16,850
13,345
408,577
2,563,159
—
3,196,725
Financial investments
60,615
37,973
129,039
512,496
105,577
33
845,733
Other assets
21,067
100
—
—
—
—
21,167
Total assets
2,044,844
253,684
185,479
972,598
2,668,741
56,841
6,182,187
Liabilities
Deposits by banks
1,397
—
—
—
—
—
1,397
Customer accounts
5,189,337
140,737
248,715
78,892
—
—
5,657,681
Items in course of transmission to other banks
21,573
—
—
—
—
—
21,573
Held for trading derivatives
1,144
739
1,105
1,525
79
—
4,592
Borrowings from group undertaking
—
—
—
—
60,000
—
60,000
Subordinated liabilities
—
—
—
—
62,000
—
62,000
Other liabilities
4,055
923
546
756
838
—
7,118
Total liabilities
5,217,506
142,399
250,366
81,173
122,917
—
5,814,361
Liquidity gap
(3,172,662)
111,285
(64,887)
891,425
2,545,824
Cumulative liquidity gap
(3,172,662)
(3,061,377)
(3,126,264)
(2,234,839)
310,985
At 31 December 2020
Assets
Cash
28,890
—
—
—
—
—
28,890
Balances with Central Bank of Malta and Treasury
Bills
773,935
126,189
16,049
—
—
51,616
967,789
Items in the course of collection from other banks
4,959
—
—
—
—
—
4,959
Held for trading derivatives
914
1,058
1,354
1,457
1,791
—
6,574
Loans and advances to banks
137,869
30,000
150,000
265,570
—
—
583,439
Loans and advances to customers
231,895
9,864
133,224
329,078
2,560,603
—
3,264,664
Financial investments
47,508
35,690
120,313
613,901
60,040
31
877,483
Other assets
29,342
270
—
—
—
—
29,612
Total assets
1,255,312
203,071
420,940
1,210,006
2,622,434
51,647
5,763,410
Liabilities
Deposits by banks
3,754
—
—
—
—
—
3,754
Customer accounts
4,751,255
154,626
298,769
109,104
—
—
5,313,754
Items in course of transmission to other banks
21,372
—
—
—
—
—
21,372
Held for trading derivatives
894
1,036
1,311
1,410
1,900
—
6,551
Subordinated liabilities
—
—
—
—
62,000
—
62,000
Other liabilities
4,340
1,178
995
2,203
857
—
9,573
Total liabilities
4,781,615
156,840
301,075
112,717
64,757
—
5,417,004
Liquidity gap
(3,526,303)
46,231
119,865
1,097,289
2,557,677
Cumulative liquidity gap
(3,526,303)
(3,480,072)
(3,360,207)
(2,262,918)
294,759
Current accounts and savings deposits payable on demand or at short notice amounted to €4,911 million at 31 December 2021 (2020:
€4,436 million), for the local group and €4,947 million at 31 December 2021 (2020: €4,476 million) for the bank. This amount is
disclosed within the ‘Not more than three months’ maturity grouping. However, in practice these deposits are maintained with the bank
for longer periods; hence the effective behavioural date of repayment is later than the contractual date. This amount represents a
significant part of the local group’s funding. The local group places considerable importance on maintaining the stability of these
deposits.
Overdraft and credit card balances included within ‘Loans and advances to customers’ amounted to €160 million at 31 December 2021
(2020: €197 million), both for the local group and the bank. This amount is also disclosed within the ‘Not more than three months’
maturity grouping.
vCash flows payable by the local group under financial liabilities by remaining maturities
The following is an analysis by relevant maturity groupings of undiscounted cash flows payable under the principal non-derivative
financial liabilities (excluding financial instruments relating to HSBC Life Assurance (Malta) Ltd) by remaining contractual maturities at the
reporting date. Information relating to HSBC Life insurance business is disclosed in Note 4(f)(iv):
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
103
Cash flows payable under non-derivative financial liabilities
Group
At 31 December 2021
Due within
3 months
Due between
3 and 12
months
Due between
1 and 5 years
Due after
5 years
Gross nominal
outflow
Carrying
amount
€000
€000
€000
€000
€000
€000
Financial liabilities
Deposits by banks
1,397
—
—
—
1,397
1,397
Customer accounts
5,153,143
391,319
79,621
—
5,624,083
5,621,195
Borrowings from group undertaking
85
254
1,356
61,695
63,390
60,000
Subordinated liabilities
228
684
3,651
63,825
68,388
62,000
Other liabilities
4,008
1,514
852
955
7,329
7,118
5,158,861
393,771
85,480
126,475
5,764,587
5,751,710
Commitments and Contingent Liabilities
1,110,803
—
—
—
1,110,803
1,110,803
At 31 December 2020
Financial liabilities
Deposits by banks
3,754
—
—
—
3,754
3,754
Customer accounts
4,719,102
455,579
110,722
—
5,285,403
5,272,961
Subordinated liabilities
235
704
3,755
64,816
69,510
62,000
Other liabilities
4,430
2,537
3,065
1,302
11,334
9,573
4,727,521
458,820
117,542
66,118
5,370,001
5,348,288
Commitments and Contingent Liabilities
1,223,615
—
—
—
1,223,615
1,223,615
Bank
At 31 December 2021
Financial liabilities
Deposits by banks
1,397
—
—
—
1,397
1,397
Customer accounts
5,189,630
391,319
79,621
—
5,660,570
5,657,681
Borrowings from group undertaking
85
254
1,356
61,695
63,390
60,000
Subordinated liabilities
228
684
3,651
63,825
68,388
62,000
Other liabilities
4,008
1,514
852
955
7,329
7,118
5,195,348
393,771
85,480
126,475
5,801,074
5,788,196
Commitments and Contingent Liabilities
1,110,805
—
—
—
1,110,805
1,110,805
At 31 December 2020
Financial liabilities
Deposits by banks
3,754
—
—
—
3,754
3,754
Customer accounts
4,759,896
455,579
110,722
—
5,326,197
5,313,754
Subordinated liabilities
235
704
3,755
64,816
69,510
62,000
Other liabilities
4,430
2,537
3,065
1,302
11,334
9,573
4,768,315
458,820
117,542
66,118
5,410,795
5,389,081
Commitments and Contingent Liabilities
1,223,617
—
—
—
1,223,617
1,223,617
Cash flows payable by the local group under investment contracts and insurance contracts issued are disclosed in Note 4(f)(iv).
The balances in the above table do not agree with the balances in the ‘Statements of financial position’ as the table incorporates all cash
flows, on an undiscounted basis, related to principal as well as those associated with all future interest payments.
The following is an analysis by relevant maturity groupings of undiscounted cash flows relating to the local group’s derivative financial
instruments by remaining contractual maturities at the reporting date:
Contracted undiscounted cash flows
Group/Bank
At 31 December 2021
Less than
3 months
Between
3 months
and 1 year
Between
1 year and
5 years
Over
5 years
Total
€000
€000
€000
€000
€000
Inflows
57,492
130,786
1,226
241
189,745
Outflows
(57,447)
(130,719)
(1,226)
(241)
(189,633)
45
67
—
—
112
At 31 December 2020
Inflows
30,688
73,486
3,112
83
107,369
Outflows
(30,646)
(73,398)
(3,094)
(83)
(107,221)
42
88
18
—
148
Notes on the financial statements
104
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
(d)Encumbered and unencumbered assets
The objective of this disclosure is to facilitate an understanding of available and unrestricted assets that could be used to support
potential future funding and collateral needs.
An asset is defined as encumbered if it has been pledged as collateral against an existing liability, and as a result is no longer available to
the group to secure funding, satisfy collateral needs or be sold to reduce the funding requirement. The disclosure is not designed to
identify assets which would be available to meet the claims of creditors or to predict assets that would be available to creditors in the
event of a resolution or bankruptcy.
Encumbered and unencumbered assets
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Total assets at 31 December
7,174,805
6,730,459
6,311,975
5,893,605
Less:
Debt securities pledged in terms of the Depositor Compensation Scheme
20,021
21,007
20,021
21,007
Less:
Cash pledged in terms of the Recovery and Resolution Regulations
1,272
1,053
1,272
1,053
Less:
Other assets that cannot be pledged as collateral
996,892
978,920
143,235
150,792
Assets available to support funding and collateral needs at 31 December
6,156,620
5,729,479
6,147,447
5,720,753
Out of the €6,157,000,000 (2020: €5,729,000,000) assets available for the local group and €6,147,000,000 (2020: €5,721,000,000) for the
bank, €3,924,000,000 (2020: €3,944,000,000) do not form part of the local group’s and the bank’s HQLA and are therefore not
categorised as liquid assets. Debt securities pledged against the provision of credit lines by the Central Bank of Malta amounting to
€81,967,000 (2020: €83,450,000) are being treated as unencumbered assets since the nature of these exposures makes them available
for immediate release.
(e)Market risk
Market risk is the risk that movements in market risk factors, including foreign exchange rates, interest rates and market prices will
impact the local group’s income or the value of its portfolios. Exposure to market risk arises from positions that primarily emanate from
the interest rate management of the local group’s retail and commercial banking assets and liabilities and financial investments
measured at FVOCI.
The objective of the local group’s market risk management is to manage and control market risk exposures in order to optimise return on
risk while maintaining a market profile consistent with the local group’s status as a premier provider of financial products and services.
Market risk is managed and controlled through limits approved by HSBC Holdings plc and the global businesses. These limits are
allocated across business segments and agreed with the HSBC Group’s legal entities. The management of market risk is principally
undertaken using risk limits allocated from the risk appetite. Limits are set for portfolios, products and risk types, with market liquidity
being a principal factor in determining the level of limits set. Risk, as an independent function, is responsible for market risk management
and measurement techniques. The bank has an independent market risk management and control function which is responsible for
measuring market risk exposures in accordance with policies, and monitoring and reporting these exposures against the prescribed limits
on a daily basis.
Each line of business is requested to assess the market risks which arise on each product in the business and, where there is a risk that
can be hedged in the markets, this is transferred to the local Global Markets for management. Where market risk is identified but there is
no viable hedge in the market, then the risk is managed under the local ALCO.
Monitoring and limiting market risk exposure
The bank uses a range of tools to monitor and limit market risk exposures including sensitivity analysis, value at risk (‘VaR’), and stress
testing.
i  Sensitivity analysis
Sensitivity analysis measures the impact of individual market factor movements on specific instruments or portfolios including interest
rates, foreign exchange rates and equity prices, such as the impact of a one basis point change in yield. The bank uses sensitivity
measures to monitor the market risk positions within each risk type, for example, the present value of a basis point movement in interest
rates for interest rate risk. Sensitivity limits are set for portfolios, products and risk types, with the depth of the market being one of the
principal factors in determining the level of limits set.
ii  Value at risk (‘VaR’)
VaR is a technique that estimates the potential losses on risk positions in a portfolio as a result of movement in market rates and prices
over a specified time horizon and to a given level of confidence. The use of VaR is integrated into market risk management.
The VaR model used by the local group is based predominantly on historical simulation. This model derives plausible future scenarios
from past series of recorded market rates and prices, taking into account inter-relationships between different markets and rates such as
interest rates and foreign exchange rates.
The historical simulation models used incorporate the following features:
•historical market rates and prices are calculated with reference to foreign exchange rates, interest rates, equity prices and the
associated volatilities;
•potential market movements utilised for VaR are calculated with reference to data from the past two years; and
•VaR measures are calculated to a 99 per cent confidence level and use a one-day holding period.
The nature of VaR models means that an increase in observed market volatility will lead to an increase in VaR without any changes in the
underlying positions. The local group routinely validates the accuracy of the VaR models by back-testing the hypothetical daily results.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
105
Although a valuable guide to risk, VaR should always be viewed in the context of its limitations. For example:
•the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are
extreme in nature;
•the use of a holding period assumes that all positions can be liquidated or the risks offset during that period. This may not fully reflect
the market risk arising at times of severe illiquidity, when the holding period may be insufficient to liquidate or hedge all positions
fully;
•the use of a 99 per cent confidence level, by definition does not take into account losses that might occur beyond this level of
confidence;
•VaR is calculated on the basis of exposures outstanding at the close of business and therefore does not necessarily reflect intra-day
exposures; and
•VaR is unlikely to reflect loss potential on exposures that only arise under significant market movements.
The local group recognises these limitations and thus resorts to the use of other tools.
VaR for the bank
2021
2020
€000
€000
At 31 December
974
840
Average
1,097
836
Minimum
848
594
Maximum
1,250
1,048
iii  Stress testing
Stress testing is an important tool that is integrated into the local group’s market risk management to evaluate the potential impact on
portfolio values of more extreme, although plausible, events or movements in a set of financial variables. In such abnormal scenarios,
losses can be much greater than those predicted by VaR modelling. A standard set of scenarios is utilised consistently across the HSBC
Group, which are however tailored in order to capture the relevant events or market movements happening locally. The risk appetite
around potential stress losses is set and monitored against referral limits.
iv  Interest rate risk
Interest rate risk in the bank’s portfolios arises principally from mismatches between the future yield on assets and their funding cost, as
a result of interest rate changes. Analysis of this risk is complicated by having to make assumptions on embedded optionality within
certain product areas, such as the incidence of mortgage prepayments, and from behavioural assumptions regarding the economic
duration of liabilities which are contractually repayable on demand, such as current accounts.
Interest rate risk is assessed and managed according to ‘business as usual’ conditions. The bank’s aim in this respect is to mitigate the
effect of prospective interest rate movements which could reduce future net interest income. The bank’s ALCO is responsible for
oversight over the bank’s interest rate risk management process and actively monitors the interest rate risk measures utilised.
Sensitivity of net interest income
A principal element of the local group’s management of interest rate risk is monitoring the sensitivity of projected net interest income
under varying interest rate scenarios (simulation modelling). The local group applies a combination of scenarios and assumptions which
are used throughout the HSBC Group.
Projected net interest income sensitivity figures represent the effect of the pro forma movements in net interest income based on the
projected yield curve scenarios and the current interest rate risk profile. This effect, however, does not incorporate actions which would
probably be taken by the local group to mitigate the effect of interest rate risk. In reality, the local group actively seeks to change the
interest rate risk profile to minimise losses and optimise net revenues.
The net interest income sensitivity calculations shown in the table below, assume that interest rates of all maturities move by the same
amount in the ‘up-shock’ scenario and ‘down-shock’ scenario subject to an established response strategy set by the bank. The net
interest income sensitivity calculations take account of the effect on net interest income of anticipated differences in changes between
interbank interest rates and interest rates over which the bank has discretion in terms of the timing and extent of rate changes.
The table below sets out the impact on future one year net income of an incremental 100 basis points parallel fall or rise in the yield
curves, based on current financial position/risk profiles and current managed interest rate policy. During 2021, these profiles and policies
were reviewed by business heads and approved by ALCO.
Impact on future one year net income
Group/Bank
Impact on profit
for the year
Impact on profit
for the year
2021
2020
€000
€000
+ 100 basis points
20,629
16,366
- 100 basis points
(19,217)
(13,769)
The table below discloses the mismatch of the dates on which interest on financial assets and financial liabilities (excluding financial
instruments relating to HSBC Life Assurance (Malta) Ltd) are next reset to market rates on a contractual basis or, if earlier, the dates on
which the instruments mature as at 31 December. Information relating to HSBC Life insurance business is disclosed in Note 4(f)(ii). Actual
reset dates may differ from contractual dates owing to prepayments and the exercise of options. In addition, contractual terms may not
be representative of the behaviour of financial assets and liabilities.
Notes on the financial statements
106
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Group
At 31 December 2021
Not more
than
3 months
Between
3 and 6
months
Between
6 months
and 1 year
Between
1 year
and 5 years
More than
5 years
Total
€000
€000
€000
€000
€000
€000
Assets
Balances with Central bank of Malta and Treasury Bills
1,352,001
56,076
6,013
—
—
1,414,090
Loans and advances to banks
335,200
11,908
180,000
85,954
—
613,062
Loans and advances to customers
2,627,456
200,450
329,838
23,364
15,617
3,196,725
Debt instruments measured at fair value through other
comprehensive income
77,666
37,973
116,032
508,452
105,577
845,700
Total assets
4,392,323
306,407
631,883
617,770
121,194
6,069,577
Liabilities
Deposits by banks
1,397
—
—
—
—
1,397
Customer accounts
5,152,851
140,737
248,715
78,892
—
5,621,195
Borrowings from group undertaking
60,000
—
—
—
—
60,000
Subordinated liabilities
62,000
—
—
—
—
62,000
Total liabilities
5,276,248
140,737
248,715
78,892
—
5,744,592
Interest rate sensitivity gap
(883,925)
165,670
383,168
538,878
121,194
Cumulative interest rate sensitivity gap
(883,925)
(718,255)
(335,087)
203,791
324,985
At 31 December 2020
Assets
Balances with Central bank of Malta and Treasury Bills
774,988
126,189
16,049
—
—
917,226
Loans and advances to banks
577,869
—
5,570
—
—
583,439
Loans and advances to customers
2,183,933
219,691
479,209
363,409
18,422
3,264,664
Debt instruments measured at fair value through other
comprehensive income
185,324
635
108,076
523,377
60,040
877,452
Total assets
3,722,114
346,515
608,904
886,786
78,462
5,642,781
Liabilities
Deposits by banks
3,754
—
—
—
—
3,754
Customer accounts
4,710,462
154,626
298,769
109,104
—
5,272,961
Subordinated liabilities
62,000
—
—
—
—
62,000
Total liabilities
4,776,216
154,626
298,769
109,104
—
5,338,715
Interest rate sensitivity gap
(1,054,102)
191,889
310,135
777,682
78,462
Cumulative interest rate sensitivity gap
(1,054,102)
(862,213)
(552,078)
225,604
304,066
Bank
At 31 December 2021
Assets
Balances with Central bank of Malta and Treasury Bills
1,352,001
56,076
6,013
—
—
1,414,090
Loans and advances to banks
335,200
11,908
180,000
85,954
—
613,062
Loans and advances to customers
2,627,456
200,450
329,838
23,364
15,617
3,196,725
Debt instruments measured at fair value through other
comprehensive income
77,666
37,973
116,032
508,452
105,577
845,700
Total assets
4,392,323
306,407
631,883
617,770
121,194
6,069,577
Liabilities
Deposits by banks
1,397
—
—
—
—
1,397
Customer accounts
5,189,337
140,737
248,715
78,892
—
5,657,681
Borrowings from group undertaking
60,000
—
—
—
—
60,000
Subordinated liabilities
62,000
—
—
—
—
62,000
Total liabilities
5,312,734
140,737
248,715
78,892
—
5,781,078
Interest rate sensitivity gap
(920,411)
165,670
383,168
538,878
121,194
Cumulative interest rate sensitivity gap
(920,411)
(754,741)
(371,573)
167,305
288,499
At 31 December 2020
Assets
Balances with Central bank of Malta and Treasury Bills
774,988
126,189
16,049
—
—
917,226
Loans and advances to banks
577,869
—
5,570
—
—
583,439
Loans and advances to customers
2,183,933
219,691
479,209
363,409
18,422
3,264,664
Debt instruments measured at fair value through other
comprehensive income
185,324
635
108,076
523,377
60,040
877,452
Total assets
3,722,114
346,515
608,904
886,786
78,462
5,642,781
Liabilities
Deposits by banks
3,754
—
—
—
—
3,754
Customer accounts
4,751,255
154,626
298,769
109,104
—
5,313,754
Subordinated liabilities
62,000
—
—
—
—
62,000
Total liabilities
4,817,009
154,626
298,769
109,104
—
5,379,508
Interest rate sensitivity gap
(1,094,895)
191,889
310,135
777,682
78,462
Cumulative interest rate sensitivity gap
(1,094,895)
(903,006)
(592,871)
184,811
263,273
Balances with Central Bank of Malta included in above tables relate to balances subject to interest rate risk.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
107
A positive interest rate sensitivity gap exists where more assets than liabilities re-price during a given period. Although a positive gap
position tends to benefit net interest income in a rising interest rate environment, the actual effect will depend on a number of factors,
including the extent to which repayments are made earlier or later than the contracted date and variations in interest rates within
re-pricing periods and among currencies. Similarly, a negative interest rate sensitivity gap exists where more liabilities than assets re-
price during a given period. A negative gap position tends to benefit net interest income in a declining interest rate environment, but the
actual effect will depend on the same factors as for positive interest rate gaps.
v  Foreign exchange risk
Foreign exchange risk arises principally from the local group’s exposure to the effects of fluctuations in the prevailing foreign currency
exchange rates on its financial position and cash flows.
The table below shows an analysis of financial assets and liabilities (excluding financial instruments relating to HSBC Life Assurance
(Malta) Ltd) between balances denominated in euro and those denominated in other currencies. Information relating to HSBC Life
insurance business is disclosed in Note 4(f)(ii).
Group
2021
Reporting
currency
In USD
In GBP
Other
currencies
Total
€000
€000
€000
€000
€000
Assets
Balances with Central Bank of Malta, Treasury Bills and cash
1,453,967
319
40,875
1,246
1,496,407
Items in the course of collection from other banks
4,410
27
16
—
4,453
Held for trading derivatives
1,837
2,782
4
17
4,640
Financial investments
703,257
89,007
42,592
10,879
845,735
Loans and advances to banks
391,528
102,287
90,843
28,404
613,062
Loans and advances to customers
3,169,632
27,056
37
—
3,196,725
Other assets
20,382
984
109
100
21,575
Total assets
5,745,013
222,462
174,476
40,646
6,182,597
Liabilities
Deposits by banks
898
—
—
499
1,397
Customer accounts
5,193,510
215,727
172,069
39,889
5,621,195
Items in the course of transmission to other banks
21,573
—
—
—
21,573
Held for trading derivatives
1,715
2,852
4
21
4,592
Borrowings from group undertaking
60,000
—
—
—
60,000
Subordinated liabilities
62,000
—
—
—
62,000
Other liabilities
5,982
569
556
11
7,118
Total liabilities
5,345,678
219,148
172,629
40,420
5,777,875
Net open position
399,335
3,314
1,847
226
2020
Assets
Balances with Central Bank of Malta, Treasury Bills and cash
971,148
24,756
528
247
996,679
Items in the course of collection from other banks
4,897
20
42
—
4,959
Held for trading derivatives
3,442
3,122
8
2
6,574
Financial investments
654,293
127,759
83,622
11,811
877,485
Loans and advances to banks
488,104
976
69,728
24,631
583,439
Loans and advances to customers
3,240,646
23,427
271
320
3,264,664
Other assets
27,914
1,705
44
115
29,778
Total assets
5,390,444
181,765
154,243
37,126
5,763,578
Liabilities
Deposits by banks
980
2,774
—
—
3,754
Customer accounts
4,921,813
170,825
144,521
35,802
5,272,961
Items in the course of transmission to other banks
21,372
—
—
—
21,372
Held for trading derivatives
3,256
3,266
27
2
6,551
Subordinated liabilities
62,000
—
—
—
62,000
Other liabilities
8,263
867
437
6
9,573
Total liabilities
5,017,684
177,732
144,985
35,810
5,376,211
Net open position
372,760
4,033
9,258
1,316
Notes on the financial statements
108
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Bank
2021
Reporting
currency
In USD
In GBP
Other
currencies
Total
€000
€000
€000
€000
€000
Assets
Balances with Central Bank of Malta, Treasury Bills and cash
1,453,967
319
40,875
1,246
1,496,407
Items in the course of collection from other banks
4,410
27
16
—
4,453
Held for trading derivatives
1,837
2,782
4
17
4,640
Financial investments
703,255
89,007
42,592
10,879
845,733
Loans and advances to banks
391,528
102,287
90,843
28,404
613,062
Loans and advances to customers
3,169,632
27,056
37
—
3,196,725
Other assets
19,974
984
109
100
21,167
Total assets
5,744,603
222,462
174,476
40,646
6,182,187
Liabilities
Deposits by banks
898
—
—
499
1,397
Customer accounts
5,224,408
218,957
174,427
39,889
5,657,681
Items in the course of transmission to other banks
21,573
—
—
—
21,573
Held for trading derivatives
1,715
2,852
4
21
4,592
Borrowings from group undertaking
60,000
—
—
—
60,000
Subordinated liabilities
62,000
—
—
—
62,000
Other liabilities
5,982
569
556
11
7,118
Total liabilities
5,376,576
222,378
174,987
40,420
5,814,361
Net open position
368,027
84
(511)
226
2020
Assets
Balances with Central Bank of Malta, Treasury Bills and cash
971,148
24,756
528
247
996,679
Items in the course of collection from other banks
4,897
20
42
—
4,959
Held for trading derivatives
3,442
3,122
8
2
6,574
Financial investments measured at fair value through other comprehensive income
654,291
127,759
83,622
11,811
877,483
Loans and advances to banks
488,104
976
69,728
24,631
583,439
Loans and advances to customers
3,240,646
23,427
271
320
3,264,664
Other assets
27,748
1,705
44
115
29,612
Total assets
5,390,276
181,765
154,243
37,126
5,763,410
Liabilities
Deposits by banks
980
2,774
—
—
3,754
Customer accounts
4,957,230
174,535
145,255
36,734
5,313,754
Items in the course of transmission to other banks
21,372
—
—
—
21,372
Held for trading derivatives
3,256
3,266
27
2
6,551
Subordinated liabilities
62,000
—
—
—
62,000
Other liabilities
8,263
867
437
6
9,573
Total liabilities
5,053,101
181,442
145,719
36,742
5,417,004
Net open position
337,175
323
8,524
384
All derivatives are transacted primarily to create risk management solutions for clients. All positions entered into with clients are covered
by back-to-back derivative transactions with HSBC Group entities. Accordingly, the local group or bank does not use currency derivatives
to close open currency positions.
The bank essentially manages this risk by matching asset and liability positions in each respective foreign currency, as much as is
practicable. The bank maintains exposures to foreign currencies within prescribed limits. The bank’s ALCO is responsible for oversight
over the foreign currency risk management process, whereby overnight and intra-day net positions are monitored.
(f)Insurance risk
The local group operates an integrated bank assurance model which provides wealth and protection insurance products principally for
customers with whom the local group has a banking relationship. Insurance products are sold predominantly by WPB. The subsidiary
also holds a portfolio of unit-linked investment products and non-linked insurance products that were transferred from HSBC Life
(Europe) Limited during 2014.
The majority of the risk in the local group’s insurance business derives from manufacturing activities and can be categorised as insurance
risk and financial risk. Insurance risk is the risk, other than financial risk, of loss transferred from the holder of the insurance contract to
the issuer, the insurance subsidiary company.
The risk under any insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting
claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable.
For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the local
group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance
liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are
random and the actual number and amount of claims and benefits will vary from year to year and from the estimate established using
statistical techniques.
Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected
outcome will be. The local group uses reinsurance appropriately to reduce variability of the expected outcome. Factors that aggravate
insurance risk include lack of risk diversification in terms of type and amount of risk and geographical location. For contracts with
Discretionary Participation Feature (‘DPF’), the participating nature of these contracts results in a significant portion of the insurance risk
being shared with the insured party.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
109
Frequency and severity of claims
For contracts where death is the insured risk, the most significant factors that could increase the overall frequency of claims are
epidemics or wide spread changes in lifestyle resulting in earlier or more claims than expected. At present these risks do not vary
significantly in relation to the location of the risk insured by the local group. However, undue concentration could have an impact on the
severity of benefit payments on a portfolio basis. In this respect, the impact of Covid-19 has not resulted in a significant increase in the
trend of death or critical illness claims as the socio-economic profile of the insured portfolio held by the local group has not been
significantly impacted by the pandemic.
For contracts with fixed and guaranteed benefits and fixed future premiums, there are no mitigating terms and conditions that reduce the
insurance risk accepted. For contracts with DPF, the participating nature of the contracts results in a portion of the insurance risk being
reduced over the term of the policy. Investment contracts with DPF carry negligible insurance risk.
The local group manages its insurance risk through strict underwriting limits and claims management; approval procedures for new
products and pricing reviews; close monitoring of reinsurance arrangements; and monitoring of emerging issues.
The local group’s underwriting strategy is intended to ensure that the underwritten risks are well diversified in terms of type of risk and
the level of insured benefits. For example, the local group balances death risk across its portfolio. Medical selection is also included in the
local group’s underwriting procedures, with premium varied to reflect the health condition and family medical history of the applicants.
Sources of uncertainty in the estimation of future benefit payments and premium receipts
Uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts arises from the
unpredictability of long-term changes in overall levels of mortality, and the variability in contract holder behaviour. The local group uses
appropriate base tables of standard mortality according to the type of contract being written. In this respect, it is of note that no
significant increases in the trend of death or critical illness claims or lapse rates were experienced during the current year (beyond some
volatility at the time Malta entered into lockdown). In addition, the local group does not take credit for future lapses in determining the
liability of long-term contracts.
The technical provisions in respect of long-term life insurance contracts are subject to quarterly valuations by the Approved Actuary
based on data and information provided by the local group.
The following table provides an analysis of the insurance risk exposures by type of business, gross of reinsurance:
2021
2020
€000
€000
Life insurance (non-linked)
Insurance contracts with discretionary participation feature
270,591
281,784
Term assurance and other long-term contracts
122,648
124,809
Total non-linked
393,239
406,593
Life insurance (linked)
264,958
241,435
Liabilities under insurance contracts
658,197
648,028
Financial risk
The local group’s insurance subsidiary company is exposed to financial risk through its financial assets, financial liabilities (investment
contracts), reinsurance assets and insurance liabilities. In particular, the key financial risk is that the proceeds from its financial assets are
not sufficient to fund the obligations arising from its insurance and investment contracts; this can be driven by changes in the market
value of assets or through changes to expectations on future yields impacting the value of liabilities. The most important components of
this financial risk are market risk, credit risk and liquidity risk. This risk is heightened through the period of market volatility that has been
brought about because of Covid-19.
For unit-linked insurance and investment contracts, the insurance subsidiary company matches all the liabilities on which the unit prices
are based with assets in the unit-linked portfolios. There is therefore no direct equity price, currency, credit or interest risk exposure for
these contracts which is borne by the company. The insurance subsidiary company is however exposed indirectly for unit-linked
insurance and investment contracts as unit price changes will have an impact on the expected management charges the company is
expecting to receive.
i  General nature of participation feature and unit-linked contracts
The local group offers savings with-profit policies which participate in the investment returns of the with-profit funds. Up to 90% of the
eligible investment return is attributed to the contract holders. Policyholders receive regular (revisionary) bonus. A regular bonus rate is
declared yearly in advance. This rate may be reviewed upwards during the course of the year based on the performance of the fund. This
provides a progressive build-up of guaranteed benefits over the lifetime of the policy. Regular bonuses are set by the Board of the
insurance subsidiary on the recommendation of the Approved Actuary. The local group is exposed to adverse market conditions which
could lead to the value of assets backing the liabilities to fall below the guaranteed benefit at policy maturity, which could lead to a
potential loss to the shareholders.
ii  Market risk
Interest rate risk
The insurance subsidiary’s exposure to interest rate changes is concentrated in its non-linked investment portfolio. Changes in
investment values attributable to interest rate changes are mitigated by partially offsetting changes in the economic value of insurance
provisions. The local group monitors this exposure through periodic reviews of its asset and liability positions. Estimates of future cash
flows, as well as the impact of interest rate fluctuations on its investment portfolio and insurance liabilities, are modelled and reviewed
quarterly. Interest rate risk in the insurance subsidiary company is minimised primarily by matching estimated future cash outflows to be
paid to policyholders with expected cash flows from assets. The pool of investments backing liabilities is managed to duration targets
that aim to make the net effect of interest rate changes on assets and liabilities manageable.
Notes on the financial statements
110
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Exchange risk
The insurance subsidiary company is exposed to currency risk on its investment portfolio and to 10% of the investments backing
contracts with DPF and to the life insurance portfolio. The net exposure amounts to €4,610,000 (2020: €3,534,000) and a sensitivity
analysis is not deemed necessary on the basis of insignificance of the resultant exposure.
Equity price risk
The insurance subsidiary company manages the equity risk arising from its holdings of equity securities by setting limits on the maximum
market value of equities that it may hold. Equity risk is also monitored by estimating the effect of predetermined movements in equity
prices on the profit and total net assets of the insurance underwriting business.
Sensitivity analysis
The local group performs various sensitivity analysis as summarised below. An immediate and permanent movement in interest yield
curves or equity prices as at the reporting date would have the following impact on the profit for the year and net assets at that date:
Impact on profits for the year and
net assets
2021
2020
€000
€000
+100 basis points shift in yield curves
3,582
3,451
-100 basis points shift in yield curves
(6,032)
(19,409)
+10 per cent increase in equity prices
789
682
-10 per cent decrease in equity prices
(789)
(682)
iii  Credit risk
The main areas where the insurance subsidiary company is exposed to credit risk are:
•reinsurers’ share of insurance liabilities;
•amounts due from reinsurers in respect of claims already paid;
•investment portfolios of debt securities;
•insurance and other receivables; and
•call deposits.
The insurance subsidiary company structures the levels of credit risk it accepts by placing limits on its exposure to investment grade
single counterparty, or groups of counterparties, and to geographical and industry segments. Investment credit exposures positions are
reviewed on a quarterly basis by the insurance subsidiary company’s Asset Liability Committee.
The selection of reinsurers also includes restrictions designed to minimise the risk of credit exposure.
The insurance subsidiary company currently manages the majority of reinsurance risk by using reinsurers with a minimum rating of AA+.
The creditworthiness of reinsurers is confirmed from public rating information and considered on an annual basis by reviewing their
financial strength prior to finalisation of any contract.
The third party banks with whom cash and cash equivalents are held, amounting to €2,079,000 (2020: €1,956,000), are rated BBB and
above. In line with IFRS 9 requirements, the insurance subsidiary company measures credit risk and expected credit losses using
probability of default, exposure at default and loss given default. Management consider both historical analysis and forward-looking
information in determining any expected credit loss. At 31 December 2021 and 2020 cash deposits are held with reputable counterparties
and are due on demand. Management consider the probability of default to be close to zero as the counterparties have a strong capacity
to meet their contractual obligations in the near term. As a result, no loss allowance has been recognised based on 12-month expected
credit losses as any such impairment would be wholly insignificant to the insurance subsidiary company.
Investments in bonds are made within the credit limits permitted within the investment credit risk mandate conferred by HSBC Group.
The following table presents the analysis of debt securities within the insurance business by rating agency (Standard and Poor’s Rating
Agency):
Debt securities – Unit linked
Debt securities – Others
Total
2021
2020
2021
2020
2021
2020
€000
€000
€000
€000
€000
€000
AAA
—
—
3,868
4,061
3,868
4,061
AA+ to AA-
—
—
23,803
26,582
23,803
26,582
A+ to A-
554
—
157,777
162,531
158,331
162,531
BBB+ to BBB-
1,554
1,592
61,629
61,961
63,183
63,553
BB+ to B-
1,353
1,474
—
—
1,353
1,474
Unrated
959
743
19,309
16,136
20,268
16,879
Total
4,420
3,809
266,386
271,271
270,806
275,080
The insurance subsidiary company is not exposed to credit risk in respect of unit-linked business, although the relevant credit information
is disclosed. Insurance and other receivables amounting to €3,109,000 (2020: €3,105,000) include accrued interest amounting to
€2,456,000 (2020: €2,623,000) which would exhibit a similar rating profile to debt securities above.
iv  Liquidity risk
It is an inherent characteristic of almost all insurance contracts that there is uncertainty over the amount and the timing of settlement of
claims liabilities that may arise, and this leads to liquidity risk. As part of the management of this exposure, estimates are prepared for
most lines of insurance business of cash flows expected to arise from insurance funds at the reporting date. The insurance subsidiary
company actively manages its assets in such a manner as to achieve a competitive rate of return within the prevailing risk objectives
delineated by asset liquidity, credit quality and asset-liability matching.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
111
The following table shows the contractual maturity of financial assets as at the reporting date.
Contractual maturities of financial assets
At 31 December 2021
No fixed
maturity
Due within
3 months
Due between
3 and 12
months
Due between
1 year and 5
years
Due after
5 years
Total
€000
€000
€000
€000
€000
€000
Financial investments
497,003
—
4,874
119,013
146,918
767,808
Reinsurance assets
77,972
—
—
—
—
77,972
Cash
6,211
—
—
—
—
6,211
581,186
—
4,874
119,013
146,918
851,991
At 31 December 2020
Financial investments
458,590
—
8,690
115,281
151,109
733,670
Reinsurance assets
80,083
—
—
—
—
80,083
Cash
5,820
—
—
—
—
5,820
544,493
—
8,690
115,281
151,109
819,573
The following table shows the cash flows expected to arise pertaining to insurance and investment liabilities as at the reporting date.
Cash flows of insurance and investment liabilities
At 31 December 2021
On demand
Due within
3 months
Due between
3 and 12
months
Due between
1 year and 5
years
Due after
5 years
Total
€000
€000
€000
€000
€000
€000
Liabilities to customers:
–  insurance contracts
—
17,604
47,467
196,592
413,300
674,963
–  investment contracts
121,858
587
1,162
13,442
43,329
180,378
121,858
18,191
48,629
210,034
456,629
855,341
At 31 December 2020
Liabilities to customers:
–  insurance contracts
—
16,471
42,116
202,924
393,998
655,509
–  investment contracts
111,261
532
1,489
11,073
37,345
161,700
111,261
17,003
43,605
213,997
431,343
817,209
The insurance subsidiary company’s Asset Liability Committee reviews and approves investment strategies on a periodic basis, ensuring
that assets are managed efficiently within approved risk mandates.
The methodology used for estimating cash outflows on liabilities to customers can be found below:
•Linked Insurance Reserves: derived via undiscounted cash flows. No future premiums are assumed and investment returns are not
included in the provisions. All decrements are considered.
•Linked Investment Reserves: derived via undiscounted cash flows but only considering contractual maturities and no other form of
decrement. When there is no contractual maturity, the reserve is placed within the ‘on demand‘ bucket.
•Non-Linked Reserve: derived via undiscounted reserves run-off on a reporting basis. All future premiums are considered and
provisions based on all expected decrements. The timing of cash flows is based on the expected run-off of the reserves.
5
Fair value of financial and non-financial instruments
iValuation of financial instruments
All financial instruments are recognised initially at fair value. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument
on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, sometimes
there is a difference between the transaction price and the fair value of the financial asset where fair value will be based on a quoted
price in an active market (such as other observable current market transactions in the same instrument, without modification or
repackaging), or on a valuation technique whose variables include only data from observable markets, such as interest rate yield curves,
option volatilities and currency rates. When such evidence exists, the local group recognises a trading gain or loss on day one, being the
difference between the transaction price and the fair value. In all other cases (such as when significant unobservable parameters are
used), the entire day one gain or loss is deferred and is recognised in the income statement over the life of the transaction until the
transaction matures, is closed out, the valuation inputs become observable, or when the local group enters into an offsetting transaction.
The fair value of financial instruments is generally measured on an individual basis. However, in cases where the local group manages a
group of financial assets and liabilities according to its net market or credit risk exposure, the local group measures the fair value of the
group of financial instruments on a net basis but presents the underlying financial assets and liabilities separately in the financial
statements, unless they satisfy the IFRS offsetting criteria as described in Note 3(f).
Notes on the financial statements
112
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
iiControl framework
Fair values are subject to a control framework designed to ensure that they are either determined, or validated, by a function independent
of the risk-taker.
For all financial instruments where fair values are determined by reference to externally quoted prices or observable pricing inputs to
models, independent price determination or validation is utilised. In inactive markets, direct observation of a traded price may not be
possible. In these circumstances, the local group will source alternative market information to validate the financial instrument’s fair
value, with greater weight given to information that is considered to be more relevant and reliable. The factors that are considered in this
regard are, inter alia:
•the extent to which prices may be expected to represent genuine traded or tradable prices;
•the degree of similarity between financial instruments;
•the degree of consistency between different sources;
•the process followed by the pricing provider to derive the data;
•the elapsed time between the date to which the market data relates and the reporting date; and
•the manner in which the data was sourced.
For fair values determined using a valuation model, the control framework may include, as applicable, development or validation by
independent support functions of (i) the logic within valuation models; (ii) the inputs to those models; (iii) any adjustments required
outside the valuation models; and, where possible, (iv) model outputs. Valuation models are subject to a process of due diligence and
calibration before becoming operational and are calibrated against external market data on an ongoing basis.
iiiFair value hierarchy
Fair values are determined according to the following hierarchy:
•Level 1 – valuation technique using quoted market price: financial instruments with quoted prices for identical instruments in active
markets.
•Level 2 – valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active
markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where
all significant inputs are observable.
•Level 3 – valuation technique with significant unobservable inputs: financial instruments valued using models where one or more
significant inputs are unobservable.
ivCritical accounting estimates and judgements
The best evidence of fair value is a quoted price in an actively traded market. The fair values of financial instruments that are quoted in
active markets are based on bid prices for assets held and offer prices for liabilities issued. Where a financial instrument has a quoted
price in an active market, the fair value of the total holding of the financial instrument is calculated as the product of the number of units
and quoted price.
The judgement as to whether a market is active may include, but is not restricted to, the consideration of factors such as the magnitude
and frequency of trading activity, the availability of prices and the size of bid/offer spreads. The bid/offer spread represents the difference
in prices at which a market participant would be willing to buy compared with the price at which they would be willing to sell.
In the event that the market for a financial instrument is not active, a valuation technique is used. Valuation techniques may incorporate
assumptions about factors that other market participants would use in their valuations, including:
•the likelihood and expected timing of future cash flows on the instrument. Judgement may be required to assess the counterparty’s
ability to service the instrument in accordance with its contractual terms. Future cash flows may be sensitive to changes in market
rates;
•selecting an appropriate discount rate for the instrument. Judgement is required to assess what a market participant would regard as
the appropriate spread of the rate for an instrument over the appropriate risk-free rate; and
•judgement to determine what model to use to calculate fair value in areas where the choice of valuation model is particularly
subjective, for example, when valuing complex derivative products.
A range of valuation techniques is employed, dependent on the instrument type and available market data. Most valuation techniques are
based upon discounted cash flow analyses, in which expected future cash flows are calculated and discounted to present value using a
discounting curve. Prior to considering credit risk, the expected future cash flows may be known, as would be the case for the fixed leg
of an interest rate swap, or may be uncertain and require projection, as would be the case for the floating leg of an interest rate swap.
‘Projection’ utilises market forward curves, if available. In option models, the probability of different potential future outcomes is
considered. In addition, the value of some products are dependent on more than one market factor, and in these cases it is typically
necessary to consider how movements in one market factor may affect the other market factors.
The model inputs necessary to perform such calculations include interest rate yield curves, exchange rates, volatilities, correlations,
prepayment rates and default rates.
The majority of valuation techniques employ only observable market data. However, certain financial instruments are valued on the basis
of valuation techniques that feature one or more significant market inputs that are unobservable, and for them the derivation of fair value
is more judgemental. An instrument in its entirety is classified as valued using significant unobservable inputs if, in the opinion of
management, a significant proportion of the instrument’s inception profit (‘day 1 gain or loss’) or greater than 5% of the instrument’s
carrying value is driven by unobservable inputs. ‘Unobservable’ in this context means that there is little or no current market data
available from which to determine the price at which an arm’s length transaction would be likely to occur. It generally does not mean that
there is no data available at all upon which to base a determination of fair value (consensus pricing data may, for example, be used).
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
113
vDisclosures in respect of fair values of financial instruments carried at fair value
The following table sets out the financial instruments by fair value hierarchy:
Financial instruments by fair value
Group
At 31 December 2021
Valuation techniques
Quoted market
price
Using
observable
inputs
With
significant
unobservable
inputs
Total
Level 1
Level 2
Level 3
€000
€000
€000
€000
Assets
Treasury Bills
—
228,172
—
228,172
Held for trading derivatives
—
4,640
—
4,640
Financial assets mandatorily measured at fair value through profit or loss
759,325
3,873
4,610
767,808
Financial investments
845,700
—
35
845,735
1,605,025
236,685
4,645
1,846,355
Liabilities
Held for trading derivatives
—
4,592
—
4,592
Liabilities under investment contracts
185,137
—
—
185,137
185,137
4,592
—
189,729
At 31 December 2020
Assets
Treasury Bills
—
256,302
—
256,302
Held for trading derivatives
—
6,574
—
6,574
Financial assets mandatorily measured at fair value through profit or loss
724,621
3,675
5,374
733,670
Financial investments
877,452
—
33
877,485
1,602,073
266,551
5,407
1,874,031
Liabilities
Held for trading derivatives
—
6,551
—
6,551
Liabilities under investment contracts
170,865
—
—
170,865
170,865
6,551
—
177,416
Bank
At 31 December 2021
Assets
Treasury Bills
—
228,172
—
228,172
Held for trading derivatives
—
4,640
—
4,640
Financial investments
845,700
—
33
845,733
845,700
232,812
33
1,078,545
Liabilities
Held for trading derivatives
—
4,592
—
4,592
—
4,592
—
4,592
At 31 December 2020
Assets
Treasury Bills
—
256,302
—
256,302
Held for trading derivatives
—
6,574
—
6,574
Financial assets mandatorily measured at fair value through profit or loss
—
—
—
—
Financial investments
877,452
—
31
877,483
877,452
262,876
31
1,140,359
Liabilities
Held for trading derivatives
—
6,551
—
6,551
—
6,551
—
6,551
The local group’s and bank’s assets categorised within Level 2 comprise Treasury Bills, debt securities, equity investments and units in
collective investment schemes which are traded in inactive markets, with fair value determined on the basis of quoted prices in such
inactive markets.
The local group’s and bank’s derivative instruments are categorised as Level 2, since they are fair valued principally using discounted
cash flow models where all significant inputs are observable, such as exchange rates and interest rate yield curves.
No transfers of financial instruments between different levels of the fair value hierarchy have occurred during the financial years ended
31 December 2021 and 2020. The following table shows a reconciliation of the fair value measurements in Level 3 of the fair value
hierarchy:
Notes on the financial statements
114
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Reconciliation of the fair value measurements in Level 3
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Level 3
Financial assets mandatorily measured at fair value through profit or loss
At 1 January
5,374
11,379
—
4,507
Disposal/redemptions
(529)
(8,738)
—
(7,354)
Acquisitions
96
115
—
—
Exchange adjustments
—
58
—
58
Changes in fair value (recognised in profit or loss)
(331)
2,560
—
2,789
At 31 December
4,610
5,374
—
—
The financial assets mandatorily measured at fair value through profit or loss are principally attributable to insurance operations and
those categorised within Level 3 mainly comprise holdings of units in collective investment schemes. These holdings consist of shares in
alternative funds which are unlisted and have illiquid price sources. In view of the absence of quoted market prices or observable inputs
for modelling value, the fair value of the shares held is derived using the net asset value as sourced from the respective custodians,
which is not necessarily supported by audited financial statements.
In view of the insignificance of the Level 3 assets in the context of the local group’s total assets, the disclosure of key unobservable
inputs to Level 3 financial instruments and the sensitivity of Level 3 fair value to reasonably possible alternatives in respect of significant
unobservable assumptions was not deemed necessary and relevant. The significant part of the fair value changes reflected in the table
above is attributable to gains realised upon disposal.
viDisclosures in respect of fair values of non-financial instruments carried at fair value
Fair valuation of property
The local group’s land and buildings within property, plant and equipment were revalued on 31 December 2021 by an independent firm
of property valuers having appropriate recognised professional qualifications and experience in the location and category of the property
being valued. The Directors have reviewed the carrying amounts of the properties as at 31 December 2021, on the basis of the valuations
carried out by the independent property valuers.
Valuations were made on the basis of open market value taking cognisance of the specific location of the properties, the size of the sites
together with their development potential, the availability of similar properties in the area, and whenever possible, having regard to recent
market transactions for similar properties in the same location.
At 31 December 2021 and 2020, the carrying amounts of the local group’s land and buildings within property, plant and equipment, were
adjusted to reflect the properties’ estimated open market value. Albeit, market activity has been impacted in a number of sectors, which
has led to a heightened level of uncertainty within the local property market, the real impact of the pandemic and Malta’s grey-listing by
the Financial Action Task Force on property prices will not be fully known until market conditions stabilise.
The local group is required to analyse non-financial assets carried at fair value by level of the fair value hierarchy within which the
recurring fair value measurements are categorised in their entirety (Level 1, 2 or 3). The different levels of the fair value hierarchy have
been defined above as fair value measurements using:
•Quoted prices (unadjusted) in active markets for identical assets (Level 1);
•Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (that is, as prices) or indirectly
(that is, derived from prices) (Level 2);
•Inputs for the asset that are not based on observable market data (that is, unobservable inputs) (Level 3).
The local group’s land and buildings, within property, plant and equipment, comprises commercial branches, bank offices and other
operational premises. All the recurring property fair value measurements at 31 December 2021 and 2020 use significant unobservable
inputs and are accordingly categorised within Level 3 of the fair valuation hierarchy.
As at 31 December 2021, the investment property held by the local group comprised a commercial property owned by a subsidiary which
is currently held for rental yield and capital appreciation.  The investment property held by the bank, which comprised commercial
property that was leased out as offices to third parties including the local group’s intermediate parent (Note 53), was sold during the
financial year ended 31 December 2020 as explained in Note 30 ‘Investment Property’. The fair value measurement in respect of the local
group’s investment property uses significant unobservable inputs and is accordingly categorised within Level 3 of the fair valuation
hierarchy.
The local group’s policy is to recognise transfers into and out of fair value hierarchy levels on the date the event or change in
circumstances that causes the transfer occurs. There were no transfers between different levels of the fair value hierarchy during the
years ended 31 December 2021 and 2020.
A reconciliation from the opening balance to the closing balance of land and buildings for recurring fair value measurements categorised
within Level 3 of the fair value hierarchy for both investment property and owner occupied property is reflected in the tables in Notes 30
and 31 respectively.
Valuation processes
The valuations of the properties are performed regularly on the basis of valuation reports prepared by independent and qualified valuers.
These reports are based on both:
•information provided by the local group which is derived from the bank’s financial systems and is subject to the bank’s overall control
environment; and
•assumptions and valuation models used by the valuers – the assumptions are typically market-related. These are based on
professional judgement and market observation.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
115
The information provided to the valuers, together with the assumptions and the valuation models used by the valuers, are reviewed by
the Chief Financial Officer (‘CFO’). This includes a review of fair value movements over the period.
At the end of every reporting period, the CFO assesses whether any significant changes or developments have been experienced since
the last external valuation. This is supported by an assessment performed by the independent firm of property valuers.
Valuation techniques
The external valuations of the Level 3 property have been performed using predominantly the traditional investment method of valuation
based on the capitalised rentals approach. In view of the limited market information available, the valuations have been performed using
unobservable inputs. In relation to the capitalised rentals approach, the significant unobservable inputs include a capitalisation rate
applied at 5.20% – 6.50% (2020: 5.00% – 6.75%), which is effectively the discount rate adjusted for anticipated growth, and the expected
annual rental value (‘ERV’) taking into account the rental rate per square metre for comparable properties located in proximity to the local
group’s property with adjustments for differences in the size, age, exact location and condition of the property. Effectively, the
capitalisation rate indicates the return the investor expects to receive through annual rental value.
At 31 December 2021
Fair value
Valuation
technique
Significant
unobservable
input
Range of
unobservable
inputs
(weighted
average)
Description by class based on highest and best use
€000
€ per square metre
Current use as commercial branches, bank offices and other related premises
34,422
Capitalised rental
approach
Rental rate per
square metre
40 – 220                       
(129)
Currently held for rental yield and capital appreciation purposes
1,600
Capitalised rental
approach
Rental rate per
square metre
(300)
At 31 December 2020
Current use as commercial branches, bank offices and other related premises
36,206
Capitalised rental
approach
Rental rate per
square metre
40 – 220                       
(125)
Currently held for rental yield and capital appreciation purposes
1,600
Capitalised rental
approach
Rental rate per
square metre
(300)
The higher the rental rate per square metre, the higher the resultant fair valuation. Conversely, the lower the capitalisation rate, the higher
the fair value. The highest and best use of the properties reflected in the tables above is equivalent to their current use.
viiDisclosures in respect of fair values of financial instruments not carried at fair value
Certain financial instruments are carried at amortised cost. The fair values of these financial instruments are not disclosed given that the
carrying amount is a reasonable approximation of fair value because these are either re-priced to current market rates frequently or the
bank has the ability to re-price them at its own discretion, or because these are short-term in nature.
The following table sets out the carrying amounts of these financial instruments:
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Assets
Balances with Central Bank of Malta and cash
1,268,235
740,377
1,268,235
740,377
Items in course of collection from other banks
4,453
4,959
4,453
4,959
Loans and advance to banks
619,273
589,259
613,062
583,439
Loans and advance to customers
3,196,725
3,264,664
3,196,725
3,264,664
Accrued interest
17,772
21,965
15,281
19,282
Other assets
6,479
10,551
5,886
10,330
5,112,937
4,631,775
5,103,642
4,623,051
Liabilities
Deposits by banks
1,397
3,754
1,397
3,754
Customer accounts
5,621,195
5,272,961
5,657,681
5,313,754
Items in the course of transmission to other banks
21,573
21,372
21,573
21,372
Borrowings from group undertaking
60,000
—
60,000
—
Subordinated liabilities
62,000
62,000
62,000
62,000
Accrued interest
1,431
2,137
1,215
1,933
Other liabilities
9,751
10,751
5,903
7,640
5,777,347
5,372,975
5,809,769
5,410,453
Fair values for these financial instruments (other than for cash) are estimated using discounted cash flows applying current market
interest rates for instruments with similar remaining maturities and hence utilising mainly Level 3 inputs.
Fair values in relation to loans and advances to customers and in relation to customer accounts repayable on demand are deemed to be
fairly close to carrying amounts principally in view of the local group’s ability to reprice at its discretion. The majority of customer term
deposit accounts are held for a period of less than 12 months and therefore their fair value is also deemed to closely approximate the
carrying amount due to their short-term nature. These estimates are considered Level 3 fair value estimates. 
Similarly deposits by banks are principally repayable on demand and, as a result, their fair value is approximated by their carrying
amount. The fair value of balances with the Central Bank of Malta, loans and advances to banks, borrowings from group undertaking and
subordinated liabilities is deemed to approximate the carrying amount due to the fact that they are short-term in nature and/or reprice
frequently.
Notes on the financial statements
116
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
6
Capital Risk Management
The local group’s approach to capital management is driven by strategic and organisational requirements, taking into account the
regulatory, economic and commercial environment. The local group aims to maintain a strong capital base to support the risks inherent
in its business, investing in accordance with its strategy and meeting both consolidated as well as local regulatory capital requirements at
all times.
The capital management process culminates in the annual local group capital plan, which is approved by the Board and which
determines the optimal amount and mix of capital required to support planned business growth whilst at the same time meet regulatory
capital requirements. Capital generated in excess of planned requirements is returned to shareholders in the form of dividends.
The impact of the local group’s capital plan on shareholder returns is therefore recognised by the level of equity capital employed for
which the local group seeks to maintain a prudent balance between the advantages and flexibility afforded by a strong capital position
and the higher returns on equity from increased leverage.
The local group manages its capital requirements based on internal targets, which are set above the prescribed minimum levels
established within the Capital Requirement Regulation (‘CRR’).
For regulatory purposes, the local group’s capital base is divided into two main categories, Common Equity Tier 1 (‘CET1’) capital and
Tier 2 capital, as defined in Part Two of the CRR. CET1 capital is the highest quality form of capital, comprising shareholders’ equity.
Under the CRR, various capital deductions and regulatory adjustments are made against these items – these include deductions for
intangible assets and the depositor compensation scheme reserve. Tier 2 capital comprises eligible subordinated debt.
The local group’s assessment and measurement of capital adequacy is aligned with regulatory requirements and with the bank’s
assessment of risk, including credit, market and operational risks.
To determine the capital required for Pillar 1 risks, the local group utilises the Standardised Approach for credit risk and operational risk
and Basic Method for foreign exchange risk in order to calculate the Pillar 1 minimum capital requirements.
Compliance with the capital plan as well as with regulatory capital measures is monitored by the Asset Liability and Capital Management
team and reported to ALCO on a monthly basis.
The following is an analysis of the local group’s capital base in accordance with the CRR’s requirements. The figures in the table below
represent the consolidated capital position of the local group within the meaning of the CRR, which differs from the scope of
consolidation for financial reporting under IFRSs. For regulatory reporting purposes, subsidiaries engaged in insurance activities are
excluded from the regulatory consolidation and deducted from regulatory capital subject to thresholds.
2021
2020
€000
€000
Common Equity Tier 1 capital
Called up share capital
108,092
108,092
Retained earnings
357,315
337,604
Revaluation reserve
24,330
32,718
Adjustments
–  depositor compensation scheme
(20,193)
(20,781)
–  intangible assets
(5,062)
(4,966)
–  expected final dividend
(8,010)
(2,717)
–  retained earnings – HSBC Life Assurance (Malta) Ltd
(34,804)
(36,691)
–  prudential valuation adjustment
(1,083)
(1,147)
–  IFRS 9 transitional adjustments
14,831
18,682
–  single resolution fund
(1,272)
(1,053)
–  non-performing loans
(21,720)
(14,315)
Total Tier 1 capital
412,424
415,426
Tier 2 capital
Subordinated liabilities
62,000
62,000
Total Tier 2 capital
62,000
62,000
Total own funds
474,424
477,426
The deduction of €21,720,000 (2020: 14,315,000) for non-performing loans is in accordance with Regulation 2019/630 as regards
minimum loss coverage for non-performing exposures.
During the financial years ended 31 December 2021 and 31 December 2020, the bank has met all external capital requirements at all
times, notwithstanding the impact of the pandemic.
HSBC Life Assurance (Malta) Ltd, one of the bank’s subsidiaries regulated by the Malta Financial Services Authority, is also required to
maintain a capital ratio above the prescribed minimum level at all times. During the financial years ended 31 December 2021 and
31 December 2020, the subsidiary has complied with all such externally imposed regulatory capital requirements.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
117
7
Interest and similar income
Group/Bank
2021
2020
                       
€000
€000
On balances with Central Bank of Malta
89
2
On loans and advances to banks
558
1,219
On loans and advances to customers
102,946
107,834
On loans and advances to banks and customers and other assets
103,593
109,055
Interest on debt and other fixed income instruments
10,237
13,676
Amortisation of net premiums on debt and other fixed income instruments
(8,120)
(9,133)
On debt and other fixed income instruments
2,117
4,543
105,710
113,598
Interest income recognised on credit impaired loans and advances, which is entirely included in interest income on loans and advances to
customers, amounted to €5,105,000 (2020: €4,350,000).
8
Interest expense
Group/Bank
2021
2020
€000
€000
On balances with Central Bank of Malta
205
279
On Treasury Bills
1,019
799
On loans and advances to banks
2,795
451
On deposits by banks
58
36
On customer accounts
2,816
4,961
On lease liabilities
92
149
On subordinated liabilities
967
1,021
7,952
7,696
9
Net fee income
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Fee income earned on:
–  financial assets or liabilities not at fair value through profit or loss, other than fees included in
effective interest rate calculations
17,391
14,743
17,391
14,743
–  trust and other fiduciary activities where the local group holds or invests in assets on behalf of its 
customers
5,982
5,247
3,067
2,723
– other
2,567
2,842
1,922
2,122
25,940
22,832
22,380
19,588
Fee expense
(1,831)
(1,872)
(1,234)
(1,390)
24,109
20,960
21,146
18,198
Net fee income amounting to €1,136,000 (2020: €861,000) is derived from the investment services activities of the local group.
10
Net trading income
Group/Bank
2021
2020
€000
€000
Net income from foreign exchange activities
5,370
5,569
Net income from held for trading financial instruments
164
157
Other
—
2,789
5,534
8,515
11
Dividend income
Dividend income received by the bank in 2021 amounted to €1,462,000 (2020: €2,033,000) representing dividend received from a
subsidiary company.
Notes on the financial statements
118
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
12
Net insurance premium income
Group
Non-linked
life insurance
Linked life
insurance
Total
€000
€000
€000
Gross insurance premium income
28,318
28,286
56,604
Reinsurers’ share of gross premium income
(5,738)
—
(5,738)
Year ended 31 December 2021
22,580
28,286
50,866
Gross insurance premium income
29,715
27,085
56,800
Reinsurers’ share of gross premium income
(5,420)
—
(5,420)
Year ended 31 December 2020
24,295
27,085
51,380
13
Other operating income
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Operating income
Rental income from investment property
—
482
—
482
Gains arising on disposal of re-possessed properties
38
357
38
357
Gains arising on disposal of owned properties classified as Non-current assets held for sale
517
54
517
54
Other income
871
645
867
630
1,426
1,538
1,422
1,523
Loss arising on disposal of equipment
(20)
(840)
(20)
(840)
Loss arising on disposal of investment property
—
(168)
—
(168)
Fair value changes in respect of investment property
—
(599)
—
—
1,406
(69)
1,402
515
14
Net insurance claims, benefits paid and movement in liabilities to policyholders
Group
2021
2020
€000
€000
Claims, benefits and surrenders paid
58,904
55,252
Movement in liabilities
10,167
(10,444)
Gross claims, benefits paid and movement in liabilities
69,071
44,808
Reinsurers’ share of claims, benefits and surrenders paid
(2,566)
(2,732)
Reinsurers’ share of movement in liabilities
2,127
(1,139)
Reinsurers’ share of claims, benefits paid and movement in liabilities
(439)
(3,871)
68,632
40,937
15
Change in expected credit losses and other credit impairment charges
Group/Bank
2021
2020
€000
€000
Change in expected credit losses:
–  loans and advances to customers including accrued interest
(3,230)
22,877
–  balances with Central Bank of Malta
(2)
(9)
–  loans and advances to banks
(6)
7
–  loan commitments and guarantees
(650)
1,103
–  other financial assets
(7)
5
–  debt instruments measured at fair value through other comprehensive income
(294)
338
Other credit impairment charges:
–  bad debts written off
4,308
2,023
–  bad debts recovered
(1,114)
(755)
(995)
25,589
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
119
16
Employee compensation and benefits
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Wages, salaries and allowances
36,260
39,512
33,920
36,933
Defined contribution social security costs
2,170
2,411
2,033
2,261
Termination benefits and long-term employee benefits
3,663
1,614
3,663
1,613
Share-based payments
233
268
227
261
42,326
43,805
39,843
41,068
Average number of employees:
–  executive and senior managerial
256
279
236
260
–  other managerial, supervisory and clerical
709
821
669
773
–  others
6
6
6
6
971
1,106
911
1,039
Termination benefits and long-term employee benefits
In 2019, the local group announced a strategic plan to increase its focus on digital banking services and to modernise its branch network. 
As part of this plan the bank closed a number of branches and devised an associated voluntary redundancy scheme in view of the
expected reduction in roles within the organisation. The provision amounted to €18,837,000 for the group and €18,459,000 for the bank,
attributable to bank employees that opted for voluntary redundancy under the voluntary redundancy scheme. The amount reflected the
estimated payments to the affected individual employees which were approximately 195 applicants, representing 180 Full Time
Equivalent employees, for the local group and 191 applicants representing 176 Full Time Equivalent employees, for the bank.
In 2020, an additional provision for restructuring costs amounting to €372,000, attributable to local group and bank, was recognised in
respect of three Full Time Equivalent employees.
In 2021 the bank announced another strategic initiative to further improve its operational structure, benefiting from the Group’s operating
models, as the bank aims to drive efficiencies and enhance customer experience, and create a leaner working model that is externally-
focused, performance-led, customer centred and fit for the future. This initiative relates primarily to the transformation and automation of
certain areas within the bank and also a planned transfer of a number of employees and activities to a local service provider. To achieve
this the bank issued two Voluntary Redundancy Schemes. Termination benefits for 2021 comprised a provision for restructuring costs
amounting to €3,208,000 attributable to local group and bank employees that opted for voluntary redundancy under one of the voluntary
redundancy schemes which closed by end of year. This amount reflects the estimated payments to the affected individual employees
which were approximately 40 applicants, representing 33 Full Time Equivalent employees, for the local group and bank. The second
voluntary redundancy scheme was still open as at 31 December 2021 and as a result no provision was recognised during 2021.
The local group and the bank have liabilities for long-term employee benefits, treated as defined benefit obligations, arising out of the
provisions of the Collective Agreement (refer to Note 41). The local group has a present obligation towards its employees in respect of
long service bonuses, bonuses on retirement due to age and compensation paid upon retirement on medical grounds. As a result of the
2021 restructuring exercise (refer to above), the long-term employee benefits provision was revised to reflect the reduction in the number
of employees as these employees were no longer eligible for the benefits stipulated within the Collective Agreement. This resulted in a
one-time release in 2021 of the provision to the income statement amounting to €431,000 (refer to Note 41). Current service costs
attributable to these obligations, amounting to €787,000 (2020: €777,000), were recognised in the income statement.
The local group also contributes towards an employee pension plan with no commitment beyond the payment of fixed contributions. The
contributions are recognised in the table above with ‘Termination benefits and long-term employee benefits’.
Share-based payments
In order to align the interests of staff with those of shareholders, restricted share awards are awarded to local group senior management
under discretionary incentive plans and, in addition, local group employees are invited to join Share Match, an HSBC International
Employee Share Purchase Plan to acquire shares in HSBC Holdings plc. Under this Plan, HSBC Holdings plc commenced granting
matching award shares to the local group’s employees subject to a three year service condition. The share-based payment is classified as
equity-settled since the share-based payment transactions with the employees are settled by the transfer of shares of HSBC Holdings plc.
An employee is required to specify a monthly deduction (subject to a cap) from the salary for buying shares on a quarterly basis at the
then current fair value (investment shares). For every three investment shares bought, the employees will receive an additional free share
(matching share) on the third anniversary of the scheme (the vesting date) provided the employee remains employed and retains the
investment shares until the end of the three-year holding period. The impact of this plan on the local group’s financial results and
financial position is insignificant, and accordingly the disclosures required by IFRS 2 in relation to share-based payment arrangements
have not been deemed necessary.
In respect of the restricted share awards (including Group Performance Share Plans (‘GPSP’)) referred to above, an assessment of
performance over the relevant period is used to determine the amount of the award to be granted. Deferred awards generally require
employees to remain in employment over the vesting period and are not subject to performance conditions after the grant date. GPSP
awards vest after five years, whereas other deferred awards generally vest over a period of three years. Vested shares may be subject to
a retention requirement (restriction) post vesting. GPSP awards are retained until cessation of employment. In view of the insignificant
impact of HSBC restricted share awards on the local group’s income statement charge, the other IFRS 2 disclosure requirements
attributable to share-based payment arrangements are not being presented in these financial statements.
17
Profit before tax
Profit before tax of the local group is stated after charging auditors’ fees (excluding VAT) amounting to €542,000 (2020: €477,000) in
relation to the annual statutory audit of the financial statements, of which €389,000 (2020: €374,000) is attributable to the bank.
Other fees, exclusive of VAT, charged by the appointed independent auditors to a subsidiary, comprise other assurance services in
respect of Solvency II requirements amounting to €60,000 (2020: €68,000).  Other fees, exclusive of VAT, charged by the appointed
Notes on the financial statements
120
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
independent auditors to the bank comprise other assurance services in respect of Investor Services Rules, Directive No. 16 issued by the
Central Bank of Malta in respect of the Regulation on Borrower-Based Measures, and the Calculation of Contributions to the Single
Resolution Fund, amounting to €30,000 (2020: €10,000).
General and administration expenses are analysed as follows:
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Premises and equipment costs
4,964
4,423
4,948
4,411
IT support and telecommunication costs
10,435
9,257
9,692
8,707
Insurance, security and maintenance costs
2,243
2,133
2,243
2,133
Investment management and administrator fees
825
811
—
—
Actuarial services
1,028
823
—
—
Service contracted out costs
11,317
7,953
10,445
7,210
Regulatory fees
6,637
5,398
6,521
5,271
Professional fees
2,090
1,532
1,721
1,141
Other administrative expenses
15,990
14,654
15,587
12,836
55,529
46,984
51,157
41,709
Other administrative expenses mainly comprise of expense items which are incurred in the course of the operations of the local group
and bank.
18
Tax expense
The local group’s and the bank’s tax expense recognised in profit or loss is analysed below:
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Current tax:
10,755
12,798
9,543
12,079
–  for this year
11,317
12,813
10,105
12,094
–  adjustments in respect of prior years
(562)
(15)
(562)
(15)
Deferred tax:
(1,628)
(9,927)
615
(5,906)
–  origination and reversal of temporary differences
(2,184)
(9,937)
59
(5,916)
–  adjustments in respect of prior years
556
10
556
10
9,127
2,871
10,158
6,173
The tax recognised in profit or loss on the local group’s and the bank’s profit before tax differs from the theoretical amount that would
arise using the applicable tax rate as follows:
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Profit before tax
26,882
10,443
29,821
20,294
Tax at the applicable rate of 35%
9,409
3,655
10,437
7,103
Tax effect of:
–  non-taxable income
(8)
(924)
—
(911)
–  income taxed at different rates
(405)
(162)
(405)
(162)
–  non-deductible expenses
37
25
37
25
–  disallowed expense arising from depreciation of property, plant and equipment
159
185
159
185
–  further allowances on rental income
(1)
(35)
(1)
(35)
–  fair value changes in respect of investment property
—
162
—
—
–  current tax adjustments in respect of prior years
(562)
(15)
(562)
(15)
–  deferred tax not previously recognised
556
10
556
10
–  tax credit on pension contribution
(109)
(109)
(109)
(109)
–  loss on disposal of property, plant and equipment
36
67
36
67
–  others
15
12
10
15
Tax expense
9,127
2,871
10,158
6,173
The tax impacts, which are entirely attributable to deferred taxation, relating to components of other comprehensive income and
accordingly presented directly in equity are as follows:
Group/Bank
2021
2020
Before tax
Tax (charge)/
credit
Net of tax
Before tax
Tax (charge)/
credit
Net of tax
€000
€000
€000
€000
€000
€000
Fair valuation of financial investments:
–  net changes in fair value
(9,375)
3,281
(6,094)
1,162
(407)
755
Fair valuation of properties:
–  net changes in fair value
2,389
(239)
2,150
338
(34)
304
Remeasurement of defined benefit obligation:
–  net remeasurement
450
(158)
292
(686)
240
(446)
(6,536)
2,884
(3,652)
814
(201)
613
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
121
19
Earnings per share
Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the local group by the weighted average
number of ordinary shares in issue during the year. The profit attributable to equity holders of the local group amounted to €17,755,000
(2020: €7,572,000), while the weighted average number of ordinary shares in issue was 360,306,099 (2020: 360,306,099). The basic
earnings per share of the local group amounted to 4.9c (2020: 2.1c). The local group has no instruments or arrangements which give rise
to dilutive potential ordinary shares, and accordingly diluted earnings per share is equivalent to basic earnings per share.
20
Balances with Central Bank of Malta, Treasury Bills and cash
Group/Bank
2021
2020
€000
€000
Balances with Central Bank of Malta
1,241,454
711,487
Malta Government Treasury Bills
–  classified at fair value through other comprehensive income
228,172
256,302
Cash
26,781
28,890
1,496,407
996,679
The average reserve deposit held with the Central Bank of Malta for the relevant maintenance period in terms of Regulation (EC) No.
1745/2003 of the European Central Bank amounted to €55,536,000 (2020: €50,564,000).
Balances with Central Bank of Malta include an amount of €1,272,000 (2020: €1,053,000) placed in an account held in respect of the
Single Resolution Fund as an Irrevocable Payment Commitment (‘IPC’) to the latter in terms of the Recovery and Resolution Regulations.
Balances with Central Bank of Malta and Malta Government Treasury Bills in the table above are shown net of credit loss allowances
which amounted to €8,000 (2020: €10,000) and €7,000 (2020: €30,000) respectively.
21
Financial assets mandatorily measured at fair value through profit or loss
Group
2021
2020
€000
€000
Debt securities and other fixed income instruments
270,806
275,080
Equity and other non-fixed income instruments
497,002
458,590
767,808
733,670
Debt securities and other fixed income instruments
Group
2021
2020
€000
€000
Issued by public bodies:
–  local government
92,699
99,596
–  foreign governments
52,860
49,061
Issued by other bodies:
–  local banks
7,072
7,319
–  foreign banks
24,586
25,869
–  other local issuers
10,152
8,904
–  other foreign issuers
83,437
84,331
270,806
275,080
Listing status:
–  listed on the Malta Stock Exchange
109,923
115,769
–  listed on other recognised exchanges
158,056
159,261
–  unlisted
2,827
50
270,806
275,080
At 1 January
275,080
267,211
Acquisitions
34,969
52,632
Disposals/redemptions
(30,739)
(43,952)
Changes in fair value
(8,504)
(811)
At 31 December
270,806
275,080
Notes on the financial statements
122
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Equity and other non-fixed income instruments
Group
2021
2020
€000
€000
Issued by other bodies:
–  local banks
1,331
1,210
–  foreign banks
3,589
6,674
–  other local issuers
26,077
26,848
–  other foreign issuers
466,005
423,858
497,002
458,590
Listing status:
–  listed on the Malta Stock Exchange
15,240
15,487
–  listed on other recognised exchanges
46,667
43,818
–  local unlisted
12,168
12,570
–  foreign unlisted
422,927
386,715
497,002
458,590
At 1 January
458,590
486,809
Acquisitions
31,003
71,723
Disposals
(40,320)
(77,355)
Changes in fair value
47,729
(22,587)
At 31 December
497,002
458,590
22
Held for trading derivatives
The local group transacts derivatives primarily to create risk management solutions for clients. This includes the structuring and
marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks. As part of this
process, the local group considers the customers’ suitability in respect of the respective risks involved and the business purpose
underlying the transaction.
The local group manages its derivative risk positions principally through offsetting derivative transactions with HSBC Group entities. For
accounting purposes, all derivative instruments are classified as held for trading.
Group/Bank
2021
2020
€000
€000
Derivative assets
Held for trading
4,640
6,574
Derivative liabilities
Held for trading
4,592
6,551
Derivatives held for trading
Group/Bank
2021
Notional
Fair Value
Assets
Notional
Fair Value
Liabilities
€000
€000
€000
€000
Foreign exchange derivatives
Currency forwards
101,965
2,960
86,045
2,852
Interest rate derivatives
Interest rate swaps
86,840
1,680
86,840
1,740
Total derivatives
4,640
4,592
2020
Foreign exchange derivatives
Currency forwards
51,213
3,368
51,079
3,278
Interest rate derivatives
Interest rate swaps
80,824
3,206
80,824
3,273
Total derivatives
6,574
6,551
The notional contract amounts of derivatives indicate the nominal value of transactions outstanding at the balance sheet date; they do
not represent amounts at risk.
Currency forwards represent commitments to purchase and sell pre-established amounts of currencies, and are gross settled.
Interest rate swaps are commitments to exchange one set of cash flows for another (for example, fixed rate for floating rate). Usually, no
exchange of principal takes place.
All of these positions are covered by back-to-back derivative transactions with HSBC Group entities, managing the market risk arising
from these positions. Any market risk retained locally is managed within approved local trading mandates.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
123
23
Loans and advances to banks
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Repayable on call and at short notice
288,682
96,837
282,471
91,017
Term loans and advances
330,591
492,422
330,591
492,422
619,273
589,259
613,062
583,439
Loans and advances to banks in the table above are shown net of credit loss allowances which amounted to €2,000 (2020: €8,000).
24
Loans and advances to customers
Group/Bank
2021
2020
€000
€000
Repayable on call and at short notice
160,166
196,639
Term loans and advances
3,094,591
3,127,934
Gross loans and advances to customers
3,254,757
3,324,573
Allowance for ECL
(58,032)
(59,909)
Net loans and advances to customers
3,196,725
3,264,664
Allowance for ECL
–  allowances booked under stage 1
14,740
13,600
–  allowances booked under stage 2
15,615
19,136
–  allowances booked under stage 3
27,677
27,173
58,032
59,909
25
Financial investments
Group
Bank
2021
2020
2021
2020
Measured at fair value through Other Comprehensive Income:
€000
€000
€000
€000
Debt instruments and other fixed income instruments
845,700
877,452
845,700
877,452
Equity and other non-fixed income instruments
35
33
33
31
845,735
877,485
845,733
877,483
Debt instruments and other fixed income instruments
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Issued by public bodies:
–  local government
520,528
426,106
520,528
426,106
–  foreign governments
203,734
204,068
203,734
204,068
Issued by other bodies:
–  other foreign issuers
121,438
247,278
121,438
247,278
845,700
877,452
845,700
877,452
Listing status:
–  listed on the Malta Stock Exchange
520,528
426,106
520,528
426,106
–  listed on other recognised exchanges
325,172
451,346
325,172
451,346
845,700
877,452
845,700
877,452
At 1 January
877,452
943,573
877,452
943,573
Exchange adjustments
13,409
(16,360)
13,409
(16,360)
Amortisation of premium/discount
(8,120)
(9,133)
(8,120)
(9,133)
Acquisitions
221,697
214,787
221,697
214,787
Disposals/redemptions
(249,667)
(256,223)
(249,667)
(256,223)
Changes in fair value
(9,071)
808
(9,071)
808
At 31 December
845,700
877,452
845,700
877,452
Debt instruments with a carrying amount of €81,967,000 (2020: €83,450,000) have been pledged against the provision of credit lines by
the Central Bank of Malta. At 31 December 2021 and 2020, no balances were outstanding against these credit lines. In addition debt
securities with a carrying amount of €20,021,000 (2020: €21,007,000) have been pledged in terms of the Depositor Compensation
Scheme (refer to Note 46).
The financial investments which are denominated in currencies other than the reporting currency are economically hedged through
balances in corresponding currencies mainly forming part of Customer accounts and Deposits by banks. Thus, the exchange adjustment
reflected above does not result in an exchange gain or loss recognised in profit or loss.
Notes on the financial statements
124
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Equity and other non-fixed income instruments
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Issued by issuers other than public bodies and banks:
–  local issuers
7
6
5
4
–  foreign issuers
28
27
28
27
35
33
33
31
Listing status:
–  unlisted
35
33
33
31
35
33
33
31
26
Prepayments and accrued income
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Gross accrued interest
27,460
31,791
24,969
29,108
Allowance for ECL
(9,688)
(9,826)
(9,688)
(9,826)
Net accrued interest
17,772
21,965
15,281
19,282
Other accrued income
2,001
1,487
1,532
1,266
Prepayments
785
696
778
688
20,558
24,148
17,591
21,236
27
Reinsurance assets
Group
2021
2020
€000
€000
Life insurance assets (non-linked)
Long-term insurance contracts
77,175
78,840
Claims outstanding
2,090
2,553
Other payables
(1,293)
(1,310)
77,972
80,083
28
Other non-current assets held for sale
Group/Bank
2021
2020
€000
€000
Assets acquired in satisfaction of debt
3,876
4,769
Assets held for sale attributable to closed branches
2,797
4,150
6,673
8,919
Repossessed properties are made available for sale in an orderly fashion, with the proceeds used to reduce or repay the outstanding
indebtedness. The local group does not generally occupy repossessed properties for its business use. Repossessed properties consist
mainly of immovable property that had been pledged as collateral by customers.
The assets acquired in satisfaction of debt of €3,876,000 (2020: €4,769,000) as at 31 December 2021 are net of an impairment provision
of €200,000 (2020: Nil) in relation to a subsequent write down to fair value attributable to one of the properties held for sale.
During 2021 and 2020, a number of branches were closed in accordance with the bank’s strategic plan to modernise its operations and
enhance its branch network infrastructure, and to reflect the continued increase of trends in customer use of and demand for digital
banking services accelerated by the Covid-19 pandemic.
During the current financial year land and buildings and other equipment with a carrying amount of €4,018,000 (2020: €2,127,000)
attributable to specific closed branches were reclassified from Property, plant and equipment (refer to Note 31).
During the financial year ended 31 December 2021, 5 branches (2020: 3 branches) with a carrying amount of €5,372,000 (2020:
€1,207,000) were disposed of. Gains on disposal amounting to €517,000 (2020: €54,000) were recognised in respect of these branches
within profit or loss.
The carrying amount as at 31 December 2021 of the remaining assets, will be recovered through a sale transaction rather than through
continuing use.
29
Investments in subsidiaries
Bank
Nature of business
Equity interest
2021
2020
%
€000
€000
HSBC Life Assurance (Malta) Ltd
Life insurance
99.99
28,578
28,578
HSBC Global Asset Management (Malta) Limited
Portfolio management services
99.99
2,281
2,281
30,859
30,859
All subsidiaries are incorporated in Malta.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
125
30
Investment property
Fair value
Cost
Fair value
Cost
2021
2021
2020
2020
€000
€000
€000
€000
Group
Freehold land and buildings
As at 1 January
1,600
1,121
9,788
8,537
Additions
—
—
6
6
Disposals
—
—
(7,595)
(6,823)
Fair value adjustments
—
—
(599)
(599)
At 31 December
1,600
1,121
1,600
1,121
Bank
Freehold land and buildings
As at 1 January
—
—
7,589
6,817
Additions
—
—
6
6
Disposals
—
—
(7,595)
(6,823)
At 31 December
—
—
—
—
The bank’s investment property, which was a non core property asset and not part of the bank’s normal business, was disposed of
during the financial year ended 31 December 2020 as announced on 17 January 2020. During the year ended 31 December 2020 rental
income relating to this investment property of €482,000 was recognised in profit or loss, for the local group and the bank. Additionally, a
loss amounting to €168,000 was realised upon disposal (refer to Note 13).
Fair values are determined by professional valuers who apply recognised valuation techniques. The local group has in place set
benchmarks to ensure that these valuers hold the necessary recognised and relevant professional qualifications as well as the knowledge
and experience depending on the location and category of the investment property being valued.
31
Property, plant and equipment
Group
Land and
buildings
Computer
equipment
Others
Total
€000
€000
€000
€000
Cost/revaluation
At 1 January 2021
37,966
20,265
38,232
96,463
Additions
67
79
1,687
1,833
Revaluation
2,384
—
—
2,384
Disposals/Write offs
(20)
(2,251)
(1,663)
(3,934)
Transfers (refer to Note 28)
(4,105)
—
(395)
(4,500)
At 31 December 2021
36,292
18,093
37,861
92,246
Accumulated depreciation and impairment losses
At 1 January 2021
1,760
18,361
32,136
52,257
Depreciation charge for the year
290
567
1,559
2,416
Revaluation
(5)
—
—
(5)
Disposals/Write offs
(20)
(2,251)
(1,592)
(3,863)
Transfers (refer to Note 28)
(155)
—
(327)
(482)
At 31 December 2021
1,870
16,677
31,776
50,323
Carrying amount at 1 January 2021
36,206
1,904
6,096
44,206
Carrying amount at 31 December 2021
34,422
1,416
6,085
41,923
Cost/revaluation
At 1 January 2020
39,765
21,171
46,695
107,631
Additions
73
443
1,256
1,772
Revaluation
320
—
—
320
Disposals/Write offs
—
(1,349)
(9,413)
(10,762)
Transfers (refer to Note 28)
(2,192)
—
(306)
(2,498)
At 31 December 2020
37,966
20,265
38,232
96,463
Accumulated depreciation and impairment losses
At 1 January 2020
1,579
19,030
39,619
60,228
Depreciation charge for the year
320
674
1,629
2,623
Revaluation
(18)
—
—
(18)
Disposals/write offs
—
(1,343)
(8,585)
(9,928)
Transfers (refer to Note 28)
(121)
—
(250)
(371)
Reversal of impairment losses
—
—
(277)
(277)
At 31 December 2020
1,760
18,361
32,136
52,257
Carrying amount at 1 January 2020
38,186
2,141
7,076
47,403
Carrying amount at 31 December 2020
36,206
1,904
6,096
44,206
Notes on the financial statements
126
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Bank
Land and
buildings
Computer
equipment
Others
Total
€000
€000
€000
€000
Cost/revaluation
At 1 January 2021
37,966
20,027
38,025
96,018
Additions
67
79
1,685
1,831
Revaluation
2,384
—
—
2,384
Disposals/Write offs
(20)
(2,251)
(1,663)
(3,934)
Transfers (refer to Note 28)
(4,105)
—
(395)
(4,500)
At 31 December 2021
36,292
17,855
37,652
91,799
Accumulated depreciation and impairment losses
At 1 January 2021
1,760
18,123
31,929
51,812
Depreciation charge for the year
290
567
1,559
2,416
Revaluation
(5)
—
—
(5)
Disposals/Write offs
(20)
(2,251)
(1,592)
(3,863)
Transfers (refer to Note 28)
(155)
—
(327)
(482)
At 31 December 2021
1,870
16,439
31,569
49,878
Carrying amount at 1 January 2021
36,206
1,904
6,096
44,206
Carrying amount at 31 December 2021
34,422
1,416
6,083
41,921
Cost/revaluation
At 1 January 2020
39,765
20,933
46,488
107,186
Additions
73
443
1,256
1,772
Revaluation
320
—
—
320
Disposals/Write offs
—
(1,349)
(9,413)
(10,762)
Transfers (refer to Note 28)
(2,192)
—
(306)
(2,498)
At 31 December 2020
37,966
20,027
38,025
96,018
Accumulated depreciation and impairment losses
At 1 January 2020
1,579
18,792
39,412
59,783
Depreciation charge for the year
320
674
1,629
2,623
Revaluation
(18)
—
—
(18)
Disposals/Write offs
—
(1,343)
(8,585)
(9,928)
Transfers (refer to Note 28)
(121)
—
(250)
(371)
Impairment losses
—
—
(277)
(277)
At 31 December 2020
1,760
18,123
31,929
51,812
Carrying amount at 1 January 2020
38,186
2,141
7,076
47,403
Carrying amount at 31 December 2020
36,206
1,904
6,096
44,206
As a result of the bank’s strategic plan to modernise its operations, announced in 2019, the branch network infrastructure continues to be
enhanced to reflect this change. As part of this plan, a number of branches have been closed. In this regard, during the current financial
year, land and buildings and other equipment with a carrying amount of €4,018,000 (2020: €2,127,000) attributable to specific closed
branches were reclassified to Other non-current assets held for sale, as their carrying amount has been recovered through a sale
transaction, or are available for sale in their current condition and their sale is highly probable as at reporting date (refer to Note 28). Land
and buildings and fixtures and fittings pertaining to specific closed branches with a carrying amount of €4,046,000 (2020: €5,532,000)
have not been reclassified to Other non-current assets held for sale as these assets do not meet the criteria within IFRS 5, Non-current
assets held for sale and discontinued operations for initial classification as held for sale.
The equipment of all impacted branches has been written off during the year ended 31 December 2020 and consequently the impairment
charge recognised in 2019 amounting to €277,000 has been reversed in 2020.
With the exception of the above, other land and buildings reported are all utilised for own activities.
If the land and buildings were stated on the historical cost basis, the carrying amounts would be:
Group/Bank
2021
2020
€000
€000
At 31 December
Cost
7,563
11,621
Accumulated depreciation
(1,875)
(1,778)
Carrying amount
5,688
9,843
Valuations of land and buildings are carried out on a regular basis such that the carrying amount of property does not differ materially
from that which would be determined using fair values at the end of the reporting period.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
127
32
Intangible assets
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Software
16,561
13,762
16,022
13,152
PVIF
33,565
40,538
—
—
Deferred acquisition costs
42
42
—
—
50,168
54,342
16,022
13,152
Software
Group
Bank
2021
2020
2021
2020
Cost
€000
€000
€000
€000
At 1 January
45,819
40,016
43,612
38,093
Additions
6,675
5,899
6,671
5,615
Disposals/Write offs
(45)
(96)
(45)
(96)
At 31 December
52,449
45,819
50,238
43,612
Accumulated amortisation
At 1 January
32,057
29,398
30,460
27,900
Amortisation charge for the year
3,876
2,751
3,801
2,652
Disposals/Write offs
(45)
(92)
(45)
(92)
At 31 December
35,888
32,057
34,216
30,460
Carrying amount at 1 January
13,762
10,618
13,152
10,193
Carrying amount at 31 December
16,561
13,762
16,022
13,152
PVIF
Group
2021
2020
€000
€000
At 1 January
40,538
50,858
Addition from current year new business
4,925
4,140
Movement from in-force business
(11,898)
(14,460)
At 31 December
33,565
40,538
The local group’s insurance business is accounted for using the embedded value approach, which, inter alia, provides a comprehensive
framework for the evaluation of insurance and related risks.
The following are the key assumptions used in the computation of the local group’s PVIF in the current and comparative periods:
2021
2020
%
%
Risk free rate
EIOPA yield curve
EIOPA yield curve
Risk adjusted discount rate
EIOPA yield curve with no margin
EIOPA yield curve with no margin
Expenses inflation
Wage inflation and French Inflation Swap Curve
modified for Malta
Wage inflation and French Inflation Swap Curve modified
for Malta
Lapse rate
Different rates for different products and duration
in-force
Different rates for different products and duration in-force
The following table shows the effect on the PVIF of reasonably possible changes in the main economic assumptions across the life
insurance business:
Group
PVIF Impact
2021
2020
Assumptions
Movement
€000
€000
Risk free rate
+100 basis points
4,226
3,458
Risk free rate
-100 basis points
(7,000)
(7,375)
Expenses inflation
+10%
(1,305)
(1,536)
Expenses inflation
-10%
1,424
1,658
Lapse rate
+100 basis points
4,983
4,999
Lapse rate
-100 basis points
(6,473)
(6,710)
Deferred acquisition costs
Group
2021
2020
€000
€000
At 1 January
42
42
Amortisation
—
—
At 31 December
42
42
Notes on the financial statements
128
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
33
Right-of-use assets
The local group leases various offsite ATMs, offices and branches as well as low value items such as IT equipment. Rental contracts are
typically made for fixed periods but may have extension options. Extension and termination options are included in a number of property
leases across the local group. These are used to maximise operational flexibility in terms of managing the assets used in the local group’s
operations. The majority of extension and termination options held are exercisable only by the local group and not by the respective
lessor.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do
not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be
used as security for borrowing purposes.
A corresponding liability representing the future outflows in terms of the lease agreements is reported in Note 44 Other Liabilities.
Group/Bank
2021
2020
Right-of-use assets
€000
€000
At 1 January
4,200
4,685
Additions
1,010
1,109
Terminations
(71)
(226)
Decreases
(1,311)
(140)
Depreciation
(1,259)
(1,228)
At 31 December
2,569
4,200
Lease liabilities at 31 December
Current
856
1,033
Non-current
1,594
3,060
2,450
4,093
Group/Bank
2021
2020
€000
€000
The income statement reflects the following amounts relating to leases:
Depreciation charge of right-of-use assets
1,259
1,228
Interest expense
92
149
Expense relating to short-term leases (included in administrative expenses)
10
17
Expense relating to leases of low-value assets that are not shown above as short-term leases (included in administrative expenses)
276
355
The total cash payments for leases, including short-term and low-value leases, in 2021 was €1,602,000 (2020: €1,738,000).
34
Deferred tax
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income taxes relate to the same fiscal authority.
The following amounts determined after appropriate offsetting are shown in the statement of financial position:
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Deferred tax assets
29,119
27,130
29,119
27,130
Deferred tax liabilities
(15,005)
(17,562)
(3,722)
(4,036)
14,114
9,568
25,397
23,094
Deferred taxes are calculated on all temporary differences under the liability method and are measured at the tax rates that are expected
to apply to the period when the asset is realised or the liability is settled based on tax rates (and tax laws) that have been substantively
enacted by the end of the reporting period. The principal tax rate used is 35% (2020: 35%), with the exception of deferred taxation on the
fair valuation of non-depreciable property, which is computed on the basis applicable to disposals of immovable property mainly giving
rise to a tax effect of 8% or 10% (depending on date of acquisition) of the transfer value (2020: 8% or 10%).
The balance at 31 December represents temporary differences attributable to:
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Depreciation of property, plant and equipment
(1,653)
(684)
(1,658)
(711)
Expected credit loss allowances
24,352
25,392
24,352
25,392
Fair valuation of properties
(3,850)
(4,164)
(3,722)
(4,036)
Fair value gains on financial instruments
(393)
(3,674)
(393)
(3,674)
Value of in-force life insurance business
(11,748)
(14,188)
—
—
Provisions for liabilities and other charges
6,819
6,646
6,423
5,922
Other
587
240
395
201
14,114
9,568
25,397
23,094
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
129
The movement in deferred tax assets and liabilities during the year is as follows:
Group
At 1 Jan
2021
Recognised in
profit or loss
Recognised in
OCI
At 31 Dec
2021
€000
€000
€000
€000
Depreciation of property, plant and equipment
(684)
(969)
—
(1,653)
Expected credit loss allowances
25,392
(1,040)
—
24,352
Fair valuation of properties
(4,164)
553
(239)
(3,850)
Fair value movements on financial instruments
(3,674)
—
3,281
(393)
Value of in-force life insurance business
(14,188)
2,440
—
(11,748)
Provisions for liabilities and other charges
6,646
331
(158)
6,819
Other
240
313
34
587
9,568
1,628
2,918
14,114
At 1 Jan
2020
Recognised in
profit or loss
Recognised in
OCI
At 31 Dec
2020
€000
€000
€000
€000
Depreciation of property, plant and equipment
(905)
221
—
(684)
Expected credit loss allowances
16,564
8,828
—
25,392
Fair valuation of properties
(5,075)
945
(34)
(4,164)
Fair value movements on financial instruments
(4,590)
1,323
(407)
(3,674)
Value of in-force life insurance business
(17,800)
3,612
—
(14,188)
Provisions for liabilities and other charges
11,184
(4,778)
240
6,646
Other
606
(224)
(142)
240
(16)
9,927
(343)
9,568
Bank
At 1 Jan
2021
Recognised in
profit or loss
Recognised in
OCI
At 31 Dec
2021
€000
€000
€000
€000
Depreciation of property, plant and equipment
(711)
(947)
—
(1,658)
Expected credit loss allowances
25,392
(1,040)
—
24,352
Fair valuation of properties
(4,036)
553
(239)
(3,722)
Fair value movements on financial instruments
(3,674)
—
3,281
(393)
Provisions for liabilities and other charges
5,922
659
(158)
6,423
Other
201
160
34
395
23,094
(615)
2,918
25,397
At 1 Jan
2020
Recognised in
profit or loss
Recognised in
OCI
At 31 Dec
2020
€000
€000
€000
€000
Depreciation of property, plant and equipment
(918)
207
—
(711)
Expected credit loss allowances
16,564
8,828
—
25,392
Fair valuation of properties
(4,899)
897
(34)
(4,036)
Fair value movements on financial instruments
(4,591)
1,324
(407)
(3,674)
Provisions for liabilities and other charges
10,814
(5,132)
240
5,922
Other
558
(218)
(139)
201
17,528
5,906
(340)
23,094
The recognised deferred tax assets and liabilities are expected to be recovered or settled principally after more than 12 months from the
end of the reporting period.
35
Other assets
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Committed letters of credit
842
1,114
842
1,114
Other
4,671
9,614
4,006
8,486
5,513
10,728
4,848
9,600
Committed letters of credit in the table above are shown net of credit loss allowances. As at 31 December 2021, there were no credit risk
allowances related to committed letters of credit (2020: €7,000).
36
Deposits by banks
Group/Bank
2021
2020
€000
€000
Term deposits
499
2,774
Repayable on demand
898
980
1,397
3,754
Notes on the financial statements
130
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
37
Customer accounts
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Term deposits
710,487
837,331
710,487
837,331
Repayable on demand
4,910,708
4,435,630
4,947,194
4,476,423
5,621,195
5,272,961
5,657,681
5,313,754
38
Accruals and deferred income
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Accrued interest
1,431
2,137
1,215
1,933
Accrued expenses
20,334
12,405
16,363
9,148
Deferred income
211
301
56
121
21,976
14,843
17,634
11,202
39
Liabilities under investment contracts
Group
2021
2020
€000
€000
At 1 January
170,865
183,706
Premiums received
7,489
6,738
Amounts paid on surrender and other terminations during the year
(12,707)
(8,447)
Changes in unit prices and other movements
19,490
(11,132)
At 31 December
185,137
170,865
40
Liabilities under insurance contracts
Group
Gross
Gross
2021
2020
€000
€000
Life insurance (non-linked)
Provisions for policyholders
391,627
403,097
Outstanding claims
1,612
3,497
Total non-linked
393,239
406,594
Life insurance (linked)
Provisions for policyholders
264,186
240,164
Outstanding claims
772
1,270
Total linked
264,958
241,434
Total liabilities under insurance contracts
658,197
648,028
Group
Non-linked
business
Linked
business
All business
Total
Provisions for
policy-holders
Provisions for
policy-holders
Outstanding
claims
€000
€000
€000
€000
At 1 January 2021
403,097
240,164
4,767
648,028
Premiums received
—
27,723
—
27,723
Other movements for the year
(11,470)
22,267
(2,383)
8,414
Account balances paid on surrender and other terminations during the year
—
(25,968)
—
(25,968)
At 31 December 2021
391,627
264,186
2,384
658,197
At 1 January 2020
410,048
244,585
3,837
658,470
Premiums received
—
26,489
—
26,489
Other movements for the year
(6,951)
(7,142)
930
(13,163)
Account balances paid on surrender and other terminations during the year
—
(23,768)
—
(23,768)
At 31 December 2020
403,097
240,164
4,767
648,028
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
131
41
Provisions for liabilities and other charges
Group
Restructuring
costs
Legal proceedings
and regulatory
matters
Long-term
employee
benefits
Other
provisions
Total
€000
€000
€000
€000
€000
Provisions (excluding contractual commitments)
At 31 December 2020
566
1,303
14,186
2,556
18,611
Additions
3,208
60
787
1,917
5,972
Amounts utilised
(1,732)
(5)
(412)
(952)
(3,101)
Unused amounts reversed
—
(151)
(431)
(581)
(1,163)
Exchange and other movements
—
—
(837)
—
(837)
At 31 December 2021
2,042
1,207
13,293
2,940
19,482
Contractual commitments
At 31 December 2020
2,420
Change in expected credit loss provision
(650)
At 31 December 2021
1,770
Total Provisions
At 31 December 2020
21,031
At 31 December 2021
21,252
Bank
Provisions (excluding contractual commitments)
At 31 December 2020
566
1,303
14,186
866
16,921
Additions
3,208
60
787
1,917
5,972
Amounts utilised
(1,732)
(5)
(412)
(952)
(3,101)
Unused amounts reversed
—
(151)
(431)
(21)
(603)
Exchange and other movements
—
—
(837)
—
(837)
At 31 December 2021
2,042
1,207
13,293
1,810
18,352
Contractual commitments
At 31 December 2020
2,420
Change in expected credit loss provision
(650)
At 31 December 2021
1,770
Total Provisions
At 31 December 2020
19,341
At 31 December 2021
20,122
Group
Restructuring
costs
Legal proceedings
and regulatory
matters
Long-term
employee
benefits
Other
provisions
Total
€000
€000
€000
€000
€000
Provisions (excluding contractual commitments)
At 31 December 2019
15,730
1,090
13,548
1,586
31,954
Additions
372
235
777
1,128
2,512
Amounts utilised
(15,536)
(8)
(912)
(142)
(16,598)
Unused amounts reversed
—
(14)
—
(16)
(30)
Exchange and other movements
—
—
773
—
773
At 31 December 2020
566
1,303
14,186
2,556
18,611
Contractual commitments
At 31 December 2019
1,317
Change in expected credit loss provision
1,103
At 31 December 2020
2,420
Total Provisions
At 31 December 2019
33,271
At 31 December 2020
21,031
Notes on the financial statements
132
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Bank
Restructuring
costs
Legal
proceedings and
regulatory
matters
Long-term
employee
benefits
Other
provisions
Total
€000
€000
€000
€000
€000
Provisions (excluding contractual commitments)
At 31 December 2019
15,352
1,090
13,548
907
30,897
Additions
372
235
777
117
1,501
Amounts utilised
(15,158)
(8)
(912)
(142)
(16,220)
Unused amounts reversed
—
(14)
—
(16)
(30)
Exchange and other movements
—
—
773
—
773
At 31 December 2020
566
1,303
14,186
866
16,921
Contractual commitments
At 31 December 2019
1,317
Change in expected credit loss provision
1,103
At 31 December 2020
2,420
Total Provisions
At 31 December 2019
32,214
At 31 December 2020
19,341
(a)Restructuring costs
In line with the local group’s strategic plan announced in 2019 which focused on investing in digital banking services, modernising the
branch network, increasing efficiency and productivity and managing costs, a provision for €18,837,000 was raised during 2019 for the
local group and €18,459,000 for the bank for restructuring costs emanating from applications by local group’s employees under a
voluntary redundancy scheme which closed by 31 December 2019 (refer to Note 16). In 2020 an additional provision for €372,000 for the
local group and the bank was recognised in respect of further voluntary redundancies for three full time equivalent employees. The
scheme was devised in view of the expected reduction in headcount as a result of the closure of a number of branches. This provision
was required to enable the local group to implement these strategic actions and as this started being accomplished a number of roles in
the bank were gradually reduced. The provision reflected the full amount of payments agreed with the individual employees affected. The
major part of the provision was utilised during 2020, with the remaining balance utilised during 2021.
In 2021 the bank announced another strategic initiative to further improve its operational structure, benefiting from the Group’s operating
models, as the bank aims to drive efficiencies and enhance customer experience, and create a leaner working model that is externally-
focused, performance-led, customer centred and fit for the future. To support this initiative, a provision for €3,208,000 for the local group
and for the bank was recognised in respect of further voluntary redundancies for thirty-three full time equivalent employees. The scheme
was introduced in view of the expected reduction in head count as a result of the transformation and automation of certain areas within
the bank. As a result, a provision was raised which reflected the full amount of payments agreed with the individual employees affected,
with a significant part of the provision utilised during current year. 
The movement in provisions is reflected in Note 16 ‘Employee compensation and benefits’ presented under termination benefits. The
provision is expected to be fully utilised during the forthcoming financial year.
(b)Litigation provision
The litigation provision as at 31 December 2021 amounted to €1,207,000 for both local group and bank (2020: €1,303,000 for the local
group and bank). This provision is expected to be settled after more than one year from the reporting date. The impact of discounting is
not considered to be significant. The movement in these provisions for 2021, comprising a net decrease in provision of €96,000 for both
local group and bank (2020: a net increase in provision of €213,000 for the local group and for the bank), is recognised through the
income statement under ‘General and administrative expenses’.
Based on legal advice, the Board believes that adequate provisions have been recognised, taking into consideration the timing and
amount of the probable economic outflows required in respect of the litigation highlighted.
(c)Provisions in respect of long-term employee benefits
The local group has a present obligation towards its employees in respect of long service bonuses, bonuses on retirement due to age and
compensation paid upon retirement for medical grounds. This provision is principally non-current in nature, with the maturity profile of
the obligation spanning over the estimated remaining working life. These obligations emanate from the provisions of the Collective
Agreement. The defined benefit obligation as at 31 December 2021 has been estimated at €13,293,000 (2020: €14,186,000) by
independent actuaries using the projected unit credit method. In 2021, as a result of the restructuring exercise referred to above, the
long-term employee benefits provision was revised to reflect the reduction in the number of employees resulting in a release recognised
in profit or loss amounting to €431,000. Furthermore, net current service charges of €787,000 (2020: €777,000) reported under
‘Additions’ were recognised in income statement, whilst actuarial (gains)/losses attributable to changes in financial assumptions,
demographic assumptions and experience adjustments of €450,000 (2020: €686,000), reported under ‘Exchange and other movements’,
were recognised in Other comprehensive income, during the current financial year.
The present value of the defined benefit obligation at 31 December 2021 and 2020 has been estimated after taking into consideration the
following assumptions:
ia rate of 0.82% (2020: 0.62%) to discount the future obligations to present value, which is based on the eurozone corporate bond yield
curve. The yield curve is derived by considering the market yields on high-quality corporate bonds with currency and term of the
corporate bonds (rated AA- or better) consistent with the currency and term of the liabilities. For longer durations, where such data is
not available, the shape of the composite AA-rated government bond yield curve is used to extrapolate the curve to very long
durations;
iian inflation rate of 1.90% (2020: 1.00%) in line with the eurozone inflation curve;
iiia salary increase assumption of 1.00% plus cost of living allowance for 2022–2023 and 2.00% from 2024 onwards (2020: 2.00%);
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
133
ivwithdrawal rates, representing the local group’s expectations in respect of retirement of employees, which were based on standard
tables used by actuaries after taking into consideration the observed retirement history of the local group;
vretirement age of 62;
vimortality rates based on generational tables used by actuaries; and
viiill health rates mainly based on the local group’s historical experience.
A sensitivity analysis for significant actuarial assumptions as of the end of the reporting period, showing how the defined benefit
obligation would have been affected by changes in the relevant actuarial assumptions that were reasonably possible at that date is not
deemed necessary taking into account the materiality and significance of the amount of the provisions in the context of the aggregate
level of assets and liabilities of the local group and the level of financial results registered during the current period.
(d)Other provision
Other provision as at 31 December 2021 amounted to €2,940,000 for the local group (2020: €2,556,000). This represents mainly the
provisions for estimated future losses in respect of a closed investment product held by one of the subsidiary companies and provision
for obligations in respect of medical insurance cost for employees who retired under previous voluntary schemes.
(e)Change in expected credit loss provision
The component of provisions for liabilities and other charges in respect of contractual commitments represents expected credit losses on
other commitments to lend, guarantees, standby letters of credit, undrawn formal standby facilities, credit lines and other commitments
to lend (refer to notes 47 and 48).
42
Borrowings from group undertaking
In December 2021 the bank has entered into a €60,000,000 loan agreement with HSBC Bank plc. The purpose of the loan is to enable the
bank to meet the interim targets for minimum requirement for own funds and eligible liabilities ('MREL') as set by the Single Resolution
Board.
The loan, which is unsecured and has been granted on normal commercial terms, is for a period of 10 years with maturity date of
16 December 2031, with an option of early repayment and subject to the terms and conditions of the Loan Agreement and applicable
laws and regulations. It bears interest at a rate equal to three-month Euribor plus a margin of 117 basis points. As at 31 December 2021
the interest rate was 0.56%.
The loan is designated as, and will constitute, the lower ranking liabilities referred to in Article 29A (3A) of the Banking Act, Chapter 371
of the Laws of Malta.
43
Subordinated liabilities
The subordinated liabilities will, in the event of the winding up of the bank, be subordinated to the claims of depositors and other
creditors. The bank did not have any defaults of interest or other breaches with respect to its subordinated liabilities during the current
and comparative periods.
The €62,000,000 subordinated unsecured loan stock, with maturity date of 14 December 2028, was issued in December 2018 to HSBC
Bank plc and has a floating rate linked to three-month Euribor. As at 31 December 2021 the interest rate was 1.47% (2020: 1.51%).
44
Other liabilities
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Committed letters of credit
842
1,121
842
1,121
Lease liabilities (refer to note 33)
2,450
4,093
2,450
4,093
Other
8,953
7,776
5,103
4,665
12,245
12,990
8,395
9,879
45
Called up share capital
Group/Bank
2021
2020
€000
€000
Authorised
470,000,000 ordinary shares of 30 cents each
141,000
141,000
Issued and fully paid up
360,306,099 ordinary shares of 30 cents each
108,092
108,092
46
Reserves
(a)Revaluation reserve
The revaluation reserve comprises the surplus arising on the revaluation of the local group’s freehold and long leasehold properties and
the cumulative net change in fair value of financial investments measured at fair value through other comprehensive income held by the
local group, net of deferred taxation. The revaluation reserve is not available for distribution.
Notes on the financial statements
134
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Group/Bank
€000
On land and buildings
1 January 2020
26,132
–  loss arising on revaluation
338
–  deferred tax on revaluation loss
(34)
–  transfer to retained earnings upon realisation through disposal
(603)
–  deferred tax on transfer upon realisation through disposal
60
31 December 2020
25,893
–  surplus arising on revaluation
2,389
–  deferred tax on revaluation surplus
(239)
–  transfer to retained earnings upon realisation through disposal
(4,938)
–  deferred tax on transfer upon realisation through disposal
494
31 December 2021
23,599
On financial investments
1 January 2020
6,070
–  fair value adjustments
1,162
–  deferred tax on fair value adjustments
(407)
31 December 2020
6,825
–  fair value adjustments
(9,375)
–  deferred tax on fair value adjustments
3,281
31 December 2021
731
Total revaluation reserve
Total as at 31 December 2020
32,718
Total as at 31 December 2021
24,330
(b)Retained earnings
Retained earnings include the Depositor Compensation Scheme reserve which is excluded for the purposes of the Own Funds
calculations (refer to Note 6) and the General Banking Risk reserve which is held as a capital buffer for regulatory purposes.
Depositor Compensation Scheme reserve
The Depositor Compensation Scheme reserve amounts to €20,193,000 (2020: €20,781,000). As at 31 December 2021, debt securities
with a carrying amount of €20,021,000 (2020: €21,007,000) had been pledged in terms of the Depositor Compensation Scheme (refer to
Note 25).
General Banking Risk reserve
Banking Rule BR 09 ‘Measures addressing credit risks arising from the assessment of the quality of asset portfolios of credit institutions
authorised under the Banking Act 1994’, issued by the MFSA, requires banks in Malta to hold additional reserves for general banking
risks in respect of non-performing loans. This reserve is required to be funded from planned dividends. As at 31 December 2021, the
General Banking Risk reserve amounts to €6,209,000 (2020: €6,209,000).
47
Contingent liabilities
Group
Contract amount
Bank
Contract amount
2021
2020
2021
2020
€000
€000
€000
€000
Guarantees
123,127
132,066
123,129
132,068
Standby letters of credit
17,230
17,954
17,230
17,954
Other contingent liabilities
2,707
2,276
2,707
2,276
143,064
152,296
143,066
152,298
The local group provides guarantees and standby letters of credit on behalf of third party customers. These are generally provided in the
normal course of the local group’s banking business. The maximum potential amount of future payments which the local group could be
required to make at 31 December is disclosed in the table above. The risks and exposures arising from guarantees and standby letters of
credit are captured and managed in accordance with the local group’s overall credit risk management policies and procedures.
The above table discloses the nominal principal amounts, which represents the maximum amounts at risk should the contracts be fully
drawn upon and clients default. As a significant portion of guarantees and standby letters of credit is expected to expire without being
drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements.
Guarantees and standby letters of credit have a term of less than one year.
The expected credit loss allowances relating to guarantees and standby letters of credit is disclosed in Note 41.
Other contingent liabilities relate to legal claims against the bank. Based on legal advice, it is not considered probable that settlement will
require the outflow of economic benefits in the case of these legal claims, or the amount of the obligation cannot be reliably measured.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
135
48
Commitments
 
Group/Bank
Contract amount
2021
2020
€000
€000
Documentary credits
16,862
19,020
Undrawn formal standby facilities, credit lines and other commitments to lend
950,877
1,052,299
967,739
1,071,319
The allowance for ECL on loan commitments is disclosed in Note 41.
The above commitments exclude commitments in relation to capital expenditure which is disclosed in Note 49.
49
Capital commitments
Capital commitments as at 31 December 2021 amounting to €62,000 (2020: €756,000) are mainly related to the acquisition of property,
plant and equipment.
50
Dividends
Group
2021
2020
2021
2020
Cents
per 30c share
Cents
per 30c share
€000
€000
Gross of income tax
–  prior year’s final dividend
1.16
—
4,180
—
–  current year’s interim dividend
—
—
—
—
1.16
—
4,180
—
Net of income tax
–  prior year’s final dividend
0.75
—
2,717
—
–  current year’s interim dividend
—
—
—
—
0.75
—
2,717
—
On 27 July 2020, the European Central Bank (‘ECB’) issued a Recommendation on dividend distributions during the Covid-19 pandemic
and repealing Recommendation ECB/2020/19 (ECB/2020/35), which inter alia recommended that no dividends be paid out by credit
institutions until 1 January 2021 and that no irrevocable commitment to pay out dividends be undertaken by credit institutions for the
financial years 2019 and 2020.
During August 2020, the Board reviewed the position regarding the payment of the dividend in respect of the financial year ended
31 December 2019 and, in view of the ECB’s recommendation, a decision to withdraw the recommendation made on 18 February 2020
to declare a final dividend in respect of the year ended 31 December 2019 was made. As at the same date, the Board also decided that
no interim dividend in respect of the year ended 31 December 2020 would be declared.
On 15 December 2020, the ECB issued another Recommendation on dividend distributions during the Covid-19 pandemic and repealing
Recommendation ECB/2020/35 (ECB/2020/62), which encourages prudence on the part of credit institutions when deciding on or paying
out dividends. As a result, the ECB generally considered distributions exceeding the lower of 15% of accumulated profit for the financial
years ended 31 December 2019 and 2020 and 20 basis points in terms of the Common Equity Tier 1 ratio to lack prudence. In this
respect, during the current financial year, the bank paid a final net dividend of €2,717,000, which represents a pay-out ratio of 15% on the
cumulative profits reported in respect of the financial years ended 31 December 2020 and 2019 for entities in scope of regulatory
consolidation in terms of the provisions of the Capital Requirements Regulation, less any dividends paid in relation to the same financial
years.
On 23 July 2021, the ECB issued another Recommendation repealing Recommendation ECB/2020/62 ((ECB/2021/31) with effect from
30 September 2021. In this respect, the bank is proposing a final net dividend of €8,010,000 in respect of the financial year ended
31 December 2021. The final dividend will be paid on 21 April 2022 to shareholders who are on the bank’s register of shareholders at
14 March 2022 subject to approval by the Annual General Meeting scheduled for 13 April 2022.
Group
2021
2020
€000
€000
Proposed dividend
Profit for the year
17,755
7,572
Proposed dividend
8,010
2,717
Less: interim dividend paid
—
—
Available for distribution
8,010
2,717
Proposed final dividend
8,010
2,717
Issued and fully paid up shares (Note 45)
360,306,099
360,306,099
Cents
per share
Cents
per share
Proposed final dividend
–  gross of income tax per share
3.42
1.16
–  net of income tax per share
2.22
0.75
No allocations were made during the current and previous year to the General Banking Risk Reserve since the reserve balance held is
sufficient to cover the current level of non-performing loans (refer to Note 46).
Notes on the financial statements
136
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
51
Cash and cash equivalents
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Balances of cash and cash equivalents are analysed below:
Cash
26,781
28,890
26,781
28,890
Malta Government Treasury Bills of three months or less
14,010
—
14,010
—
Balances with Central Bank of Malta (excluding reserve deposit) of three months or less
1,184,648
659,880
1,184,648
659,880
Loans and advances to banks of three months or less
391,352
110,347
385,198
104,527
Items in course of collection from other banks
4,453
4,959
4,453
4,959
Items in course of transmission to other banks
(21,573)
(21,372)
(21,573)
(21,372)
Per Statements of Cash Flows
1,599,671
782,704
1,593,517
776,884
Adjustment to reflect balances with contractual maturity of more than three months
486,644
773,831
490,437
776,942
Per Statements of Financial Position
2,086,315
1,556,535
2,083,954
1,553,826
Analysed as follows:
Cash and balances with Central Bank of Malta
1,268,235
740,377
1,268,235
740,377
Malta Government Treasury Bills
228,172
256,302
228,172
256,302
Loans and advances to banks
619,273
589,259
613,062
583,439
Items in course of collection from other banks
4,453
4,959
4,453
4,959
Items in course of transmission to other banks
(21,573)
(21,372)
(21,573)
(21,372)
Other liabilities
(12,245)
(12,990)
(8,395)
(9,879)
2,086,315
1,556,535
2,083,954
1,553,826
52
Segmental information
Our global businesses
The local group provides a comprehensive range of banking and related financial services to its customers. The products and services
offered to customers are organised by the following global businesses which are the local group’s reportable segments under IFRS  8,
‘Operating Segments‘.
•Wealth and Personal Banking (‘WPB’) offers a broad range of products and services to meet the personal banking and wealth
management needs of individual customers. Typically, customer offerings include personal banking products (current and savings
accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services) and wealth
management services (insurance and investment products, global asset management services and financial planning services).
•Commercial Banking (‘CMB’) offers a broad range of products and services to serve the needs of commercial customers, including
small and medium-sized enterprises, mid-market enterprises and corporates. These include credit, lending, international trade and
receivables finance. CMB also offers its customers access to products and services offered by other global businesses, for example
Global Markets (‘GM’).
•GM provides tailored financial solutions to corporate and institutional clients. The client-focused business line delivers a full range of
banking capabilities including assistance with managing risk via interest rate derivatives, the provision of foreign exchange spot and
derivative products, and payment services.
During 2020, the following realignments were effected within the local group’s internal reporting to the Board of Directors and senior
management:
•RBWM (‘Retail Banking and Wealth Management’) is now referred to as Wealth and Personal Banking (‘WPB’) following Group’s
simplification of its organisational structure by merging GPB (‘Global Private Banking’) and RBWM; and
•Balance Sheet Management was reallocated from Corporate Centre to the global businesses.
The local group’s internal reporting to the Board of Directors and Senior Management is analysed according to these business lines. For
each of the businesses, the Senior Management, in particular the Chief Executive Officer (‘CEO’), reviews internal management reports in
order to make decisions about allocating resources and assessing performance.
The Board considers that global businesses represent the most appropriate information for the users of the financial statements to best
evaluate the nature and financial effects of the business activities in which the local group engages, and the economic environments in
which it operates. As a result, the local group’s operating segments are considered to be the global businesses.
Global business results are assessed by the CEO on the basis of adjusted performance that removes the effects of significant items.
‘Significant items’ refers collectively to the items that management and investors would ordinarily identify and consider separately to
improve the understanding of the underlying trends in the business.
Results are presented in the tables below on an adjusted basis as required by IFRSs. As required by IFRS 8, reconciliation of the reported
results  to adjusted results by global business, excluding significant items, are also presented below. The local group’s operations are
closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These
allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to
global businesses. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of
subjectivity. Where relevant, income and expense amounts presented include the results of inter-segment funding. All such transactions
are undertaken on arm’s length terms.
Adjusted profit before tax and balance sheet data
Adjusted performance is computed by adjusting reported results for the effects of significant items, which distort year-on-year
comparisons. The local group considers adjusted performance provides useful information for investors by aligning internal and external
reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses
year-on-year performance. During the current financial year the bank incurred restructuring costs amounting to €3,208,000 attributable to
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
137
the local group and bank to implement the bank’s latest strategic initiative, which demanded the issuance of a Voluntary Redundancy
Scheme as outlined in Note 16. This provision was partly offset by a one-time release in the long-term employee benefits provision of
€431,000 (refer to Note 41) to reflect the reduction in the number of eligible employees as a result of this transformation and automation
programme. The net amount of €2,777,000 for the local group and bank was treated as a significant item in view of its non-recurring
nature. Accordingly, the adjusted profit by global business reported below is higher than the reported profit. In 2020 there were no
significant items requiring adjustment and the adjusted profit by global business was the same as that reported.
Group
2021
Wealth and
Personal
Banking
Commercial
Banking
Global
Markets
Group Total
€000
€000
€000
€000
Net interest income
68,271
29,487
—
97,758
–  external
68,466
29,292
—
97,758
–  internal
(195)
195
—
—
Net non-interest income
17,767
13,134
2,634
33,535
Net operating income before loan impairment charges
86,038
42,621
2,634
131,293
Change in expected credit losses and other credit impairment charges
(598)
1,593
—
995
Net operating income
85,440
44,214
2,634
132,288
Employee compensation and benefits
(30,293)
(8,904)
(352)
(39,549)
General and administrative expenses
(41,034)
(14,221)
(274)
(55,529)
Depreciation of property, plant and equipment and right-of-use assets
(2,897)
(766)
(12)
(3,675)
Amortisation of intangible assets
(2,737)
(1,123)
(16)
(3,876)
Total operating expenses
(76,961)
(25,014)
(654)
(102,629)
Adjusted profit before tax
8,479
19,200
1,980
29,659
Reported balance sheet data
Loans and advances to customers (net)
2,268,268
928,457
—
3,196,725
Total external assets
5,510,516
1,658,929
5,360
7,174,805
Customer accounts
4,380,261
1,240,934
—
5,621,195
2020
Net interest income
74,745
31,157
—
105,902
–  external
73,860
32,042
—
105,902
–  internal
885
(885)
—
—
Net non-interest income
11,098
13,585
2,838
27,521
Net operating income before loan impairment charges
85,843
44,742
2,838
133,423
Change in expected credit losses and other credit impairment charges
(13,266)
(12,323)
—
(25,589)
Net operating income
72,577
32,419
2,838
107,834
Employee compensation and benefits
(33,089)
(10,348)
(368)
(43,805)
General and administrative expenses
(35,087)
(11,654)
(243)
(46,984)
Depreciation of property, plant and equipment and right-of-use assets
(2,725)
(1,109)
(17)
(3,851)
Amortisation of intangible assets
(1,974)
(765)
(12)
(2,751)
Total operating expenses
(72,875)
(23,876)
(640)
(97,391)
Adjusted/reported profit before tax
(298)
8,543
2,198
10,443
Reported balance sheet data
Loans and advances to customers (net)
2,274,296
990,368
—
3,264,664
Total external assets
5,035,973
1,687,340
7,146
6,730,459
Customer accounts
4,215,101
1,057,860
—
5,272,961
Reconciliation of reported and adjusted profit by global business
During 2021, the performance results reported internally were adjusted for significant items.
A reconciliation of reported and adjusted profit by global business in respect of the financial year ended 31 December 2021 is shown in
the table below.
Group
2021
Wealth and
Personal
Banking
Commercial
Banking
Global
Markets
Group Total
€000
€000
€000
€000
Adjusted profit before tax
8,479
19,200
1,980
29,659
Significant item:
(2,375)
(372)
(30)
(2,777)
–  Restructuring provision
(2,375)
(372)
(30)
(2,777)
Reported profit before tax
6,104
18,828
1,950
26,882
During 2020 no significant items were reported.
Notes on the financial statements
138
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
53
Related party transactions
The immediate parent company of the local group and the bank is HSBC Europe B.V., a company incorporated in the Netherlands, with
its registered address at 8, Canada Square, London E14 5HQ, United Kingdom.
The ultimate parent company of the local group and the bank is HSBC Holdings plc, a company incorporated in England, with its
registered address at 8, Canada Square, London E14 5HQ, United Kingdom.
Related parties of the local group and the bank include subsidiaries, the ultimate parent, all entities controlled by the ultimate parent, key
management personnel, close family members of key management personnel and entities which are controlled or jointly controlled by
key management personnel or their close family members.
Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the
activities of HSBC Bank Malta p.l.c., being the Directors and the bank’s Executive Committee members.
(a)Transactions, arrangements and agreements involving Directors and other key management
personnel
Particulars of transactions, arrangements and agreements entered into with Directors and other key management personnel, close family
members and companies controlled or jointly controlled by them:
Group/Bank
Highest balance
during the year
Balance at
end of year
Highest balance
during the year
Balance at
end of year
2021
2021
2020
2020
€000
€000
€000
€000
Credit card balances
7
7
4
3
Commitments to lend
700
579
705
705
The above banking facilities are part of long-term commercial relationships and were made in the ordinary course of business and on
substantially the same terms, including interest rates and security, as for comparable transactions with persons of a similar standing or,
where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other
unfavourable features.
(b)Compensation of Directors and other key management personnel
The following represents the compensation of Directors and other key management personnel in exchange for services rendered to the
local group and the bank for the period they served during the year.
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Directors’ emoluments (including Non-Executive Directors)
Salaries and other emoluments
1,905
2,427
1,264
1,399
Benefits
124
230
118
164
Share-based payments
14
41
14
34
2,043
2,698
1,396
1,597
Other key management personnel
Salaries and other emoluments
1,283
1,885
947
2,191
Benefits
121
216
118
256
Share-based payments
14
6
14
13
1,418
2,107
1,079
2,460
Directors’ emoluments for the local group include the compensation of certain key management personnel of the bank amounting to
€338,000 (2020: €361,000) that also serve as Directors of subsidiary companies, as well as the compensation of Non-Executive Directors
of subsidiary companies amounting to €77,000 (2020: €79,000).
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
139
(c)Balances and transactions with other related parties
Balance and transactions with HSBC Bank plc
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Assets
Held for trading derivatives
2,372
597
2,372
597
Loans and advances to banks
477,829
316,373
475,357
314,079
Prepayments and accrued income
90
70
31
14
Liabilities
Held for trading derivatives
2,268
5,947
2,268
5,947
Deposits by banks
1,379
3,754
1,379
3,754
Borrowings from group undertaking
60,000
—
60,000
—
Subordinated liabilities
62,000
62,000
62,000
62,000
Accruals and deferred income
1,507
1,426
432
314
Income statement
Interest income
183
517
183
517
Interest expense
3,808
1,477
3,808
1,477
Fee income
255
203
56
90
Fee expense
100
129
46
84
Net trading income
3,388
(3,162)
3,388
(3,162)
Other income
126
110
126
110
General and administrative expenses
1,743
1,733
622
543
Balances and transactions with other subsidiaries of HSBC Holdings plc
Group
Bank
2021
2020
2021
2020
€000
€000
€000
€000
Assets
Loans and advances to banks
136,423
268,273
134,763
266,702
Prepayments and accrued income
125
159
13
33
Other assets
937
936
937
936
Liabilities
Customer accounts
2,789
2,521
2,789
2,521
Accruals and deferred income
8,714
3,733
7,062
2,596
Income statement
Interest income
375
702
375
702
Fee income
1,330
1,211
—
—
Fee expense
162
154
4
2
Net trading income
10
5
10
5
Other income
686
919
686
919
General and administrative expenses
25,603
20,430
23,983
19,072
Balances and transactions with local group entities
Bank
2021
2020
€000
€000
Assets
Prepayments and accrued income
287
277
Investment in subsidiaries
30,859
30,859
Liabilities
Customer accounts
36,486
40,793
Income statement
Fee income
2,891
2,920
Net trading income
77
67
Dividend income
1,462
2,000
The outstanding balances, reflected in tables above, arose from the ordinary course of business and are of substantially the same terms,
including interest rates and security, as for comparable transactions with third party counterparties.
54
Trust and custody activities
The local group provides custody services to individuals and retirement benefit plans, whereby it holds and manages assets or invests
funds received in various financial instruments at the direction of the customer.
The local group receives fee income for providing these services. Trust assets and assets held in custody are not assets of the local group
and are not recognised in the statements of financial position. The local group is not exposed to any credit risk relating to such
placements, as it does not guarantee these investments.
At 31 December 2021, total assets held by the local group on behalf of customers amounted to €587,713,000 (2020: €590,901,000).
Notes on the financial statements
140
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
55
Unconsolidated structured entities
The term ‘unconsolidated structured entities’ refers to all structured entities that are not controlled by the local group. The local group
has established and manages investment funds to provide customers with investment opportunities.
Type of structured entity
Nature and purpose
Interest held by the group
Investment funds
•These vehicles are financed through the issue
of units to investors.
•Investments in units issued by the fund
•To generate fees from managing assets on
behalf of third party investors.
•Management fees
As fund manager, the local group is entitled to receive a management and performance fee based on the assets under management. The
total management fees earned during the year were €3,601,000 (2020: €3,585,000).
The table below shows the total assets of unconsolidated structured entities in which the local group has an interest at the reporting
date, and the maximum exposure to loss in relation to those interests. The maximum exposure to loss from the local group’s interests in
unconsolidated structured entities represents the maximum loss that the local group could incur as a result of its involvement with
unconsolidated structured entities regardless of the probability of the loss being incurred.
2021
2020
€000
€000
Carrying amount of units in HSBC managed investment funds - classified as financial investments measured at fair value through profit
or loss
86,680
85,569
Total assets of HSBC managed funds
375,114
389,353
The maximum exposure to loss is equivalent to the carrying amount of the assets held at the reporting date.
56
Registered office and ultimate parent company
The addresses of the registered and principal offices of the bank and its subsidiary companies included in the consolidated financial
statements can be found in a separate statement which is filed at the Registrar of Companies in accordance with the provisions of the
Third Schedule to the Companies Act, 1995.
Currently, the ultimate parent company of HSBC Bank Malta p.l.c. is HSBC Holdings plc, and the immediate parent company is HSBC
Europe B.V., which are incorporated and registered in the United Kingdom and the Netherlands respectively. The registered address of
HSBC Holdings plc is 8, Canada Square, London E14 5HQ, United Kingdom and the registered address of HSBC Europe B.V. is
Karspeldreef 6K, Amsterdam, 1101 CJ, Netherlands. Copies of the HSBC Holdings plc Annual Report and Accounts may be obtained
from its registered office or viewed on www.hsbc.com.
In accordance with the company announcement dated 10 December 2021, it is proposed that HSBC Continental Europe (HBCE) is
designated as the immediate parent company. As a result, all of HSBC’s relevant EU banking subsidiaries, including the Bank, will
become owned by the HSBC Group through HBCE as the EU intermediate parent undertaking. The said proposed transaction should be
completed during 2022. The proposed transaction will not involve any change in the day-to-day business of the Bank and its subsidiaries
(‘the HSBC Malta Group’). Ultimate control of the HSBC Malta Group will not change and will remain vested in HSBC Holdings plc.
57
Investor compensation scheme
In accordance with the provisions of the Investor Compensation Scheme Regulations, 2003 issued under the Investment Services Act,
1994, licence holders are required to transfer a variable contribution to an Investor Compensation Scheme Reserve and place the
equivalent amount with a bank, pledged in favour of the Scheme. Alternatively licence holders can elect to pay the amount of variable
contribution directly to the Scheme.
58
Critical accounting estimates and judgements
This note contains information about critical judgements, significant assumptions and estimation uncertainties that have a significant risk
of resulting in a material adjustment and that have the most significant effects on the amounts recognised in the financial statements.
Information about assumptions and estimation uncertainties relating to fair valuation of financial instruments is disclosed in Note 5.
Estimates and judgements are continually evaluated and are based on historical and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
(a)Expected credit loss allowances on loans and advances
Credit loss allowances represent management’s best estimate of expected credit losses in the loan portfolios and other financial assets
subject to IFRS 9 impairment requirements at the balance sheet date. In this respect, management is required to exercise judgement in a
number of areas including in:
•defining what is considered to be a SICR;
•determining the lifetime and point of initial recognition of revolving facilities;
•calibrating PD, LGD and EAD models which support the ECL calculations, including making assumptions and estimates about how
models react to relevant information about current and future economic conditions; and
•selecting economic forecasts, including determining whether sufficient and appropriately weighted economic forecasts are
incorporated to calculate unbiased expected losses.
In particular, the measurement of the expected credit loss allowance is an area that requires the use of complex models and of statistical
analyses of historical information, supplemented with significant management judgement, to assess whether current and future
macroeconomic conditions are such that the level of expected credit losses is likely to be greater or less than historical experience. The
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
141
PD, LGD and EAD models, which support the measurement of ECL, are reviewed regularly in light of differences between loss estimates
and actual loss experience, although available information in respect of the local group’s historical loss experience since the initial
adoption of IFRS 9 is still contained. The level of estimation uncertainty and judgement has increased as a result of the economic effects
of the Covid-19 pandemic, especially since there is no observable historical trend, which can be reflected within the models, that will
accurately represent the effects of the economic changes brought about by the pandemic.
Therefore, the underlying models and their calibration, including how they react to forward-looking economic conditions, remain highly
subjective.
The exercise of judgement in making estimations requires the use of assumptions that are highly subjective and very sensitive to the risk
factors, detailed in note 4(b)(iv). In addition, many of the factors have a high degree of interdependency and there is no single factor to
which loan impairment allowances as a whole is sensitive.
A key judgement in the context of the Covid-19 pandemic is whether the heightened level of macroeconomic uncertainty and its effects
are more likely to be temporary or prolonged. The shape of recovery is also a significant uncertainty. This in turn increases significantly
the level of subjectivity around the estimation of credit loss allowances in respect of loans and advances to customers. Although  the
effective implementation of vaccination roll-out programmes has amongst other factors, led to an  economic recovery during 2021, the
level of subjectivity around the estimation of credit loss allowances remains significant, particularly due to successive waves of
infections, the potential mutation of Covid-19 variants, the efficacy of such vaccines/boosters upon the emergence of new virus strains,
and the unwinding of Government support schemes and regulatory relief measures.
In this regard, management applied a higher level of expert judgement in order to assess the impact of the pandemic on the local group’s
level of defaults, including evaluating the impact of government support schemes and regulatory relief measures, and the unwinding of
such measures, on both the incidence of default events and the severity of losses as described below.
The identification of customers experiencing significant increase in credit risk or credit impairment in the context of the elevated level of
uncertainty is highly judgemental due to limitations in available credit information on customers. This is particularly relevant in those
instances where customers have accepted payment deferrals and other relief designed to address short-term liquidity issues or have
extended those deferrals. In response to such limitations, management uses segmentation techniques for the purposes of identifying
indicators of significant increase in credit risk within both wholesale and retail portfolios.
In relation to retail portfolios, ECL models are generally reliant on the assumption that default emergence is directly impacted by
delinquency related indicators since less information is available at asset level to enable the timely identification of a SICR or UTP events.
In this respect, a management overlay was developed in respect of the mortgage portfolio in order to estimate the impact of the delayed
emergence of defaults due to government support schemes and regulatory relief measures on the calculation of credit loss allowances as
at 31 December 2021 and 2020. Amongst other factors, the segmentation technique used for this purpose takes into consideration
employment status of the borrower and the economic sector within which the borrower is employed.
Judgement was also required in determining whether individually significant loans have experienced a SICR or a UTP event within the
wholesale portfolio. In this respect, as part of management’s response to the Covid-19 pandemic, the Bank assesses and individually
rates those borrowers that requested payment deferrals/moratoria as well as those individually significant borrowers within wholesale
sub-portfolios deemed mostly impacted by the pandemic, through individual periodic credit assessments on the basis of recently
obtained management information, including forecasts. As part of these credit assessments, judgement is exercised in evaluating all
relevant information on indicators of impairment, particularly where factors indicate deterioration in the financial condition and outlook of
borrowers affecting their ability to pay.
For individually significant credit impaired loans, management determines the size of the allowance required based on a range of factors
such as the realisable value of security, the viability of the customer’s business model and the capacity to generate cash flows to service
debt obligations, under different scenarios. Judgement is applied in estimating the expected future cash flows from each borrower and
the time to recover these cash flows under the different scenarios as well as to attach probabilities to those scenarios. The assumptions
around forecasted recoveries from the sale of collateralised properties, including valuation haircuts and time to recovery, are key drivers
in the estimation of credit loss allowances in respect of individually assessed loans. The heightened level of uncertainty within the local
property market, driven by the pandemic, increases the level of expert judgement required to predict with reasonable accuracy the
recoverability of exposures through the sale of collateral, since the real impact of the pandemic will not be fully known until market
conditions stabilise. To reflect the volatile economic conditions associated with the Covid-19 pandemic, judgemental overlay adjustments
were applied by management in order to overcome limitations in respect of determining collateral valuations, and the uncertainty around
the time to repossess properties held as collateral and to resell such properties in the open market.
Significant judgement is required in establishing the number, severity and relative weightings of forward-looking economic scenarios.
The level of expert judgement required is exacerbated by the heightened level of uncertainty around predictions in respect of the potential 
impacts of epidemiological assumptions in relation to the pandemic, of the efficacy of vaccines/boosters upon the emergence of new
virus strains, and of the effectiveness of government support schemes and regulatory relief measures together with the impacts of  their
unwinding, on key macroeconomic variables and, as a result on forward-looking PDs and LGDs. As alluded to earlier, there is an absence
of an observable historical trend that can accurately represent the severity and speed of the economic impacts brought about by the
pandemic. Moreover, the complexities of government support schemes and their unwinding, regulatory guidance on the treatment of
customer impacts (such as forbearance) and the unpredictable pathways of the pandemic taking cognisance of potential new virus
strains, have never been modelled. Consequently, in some cases, the bank’s IFRS 9 models generate outputs that appear overly sensitive
when compared with other credit risk metrics and as a result, modelled assumptions and linkages between economic factors and credit
losses may underestimate or overestimate ECL in these conditions.
These model limitations have been addressed through the introduction of an additional downside scenario and the recalibration of
probability weights, as described in further detail in Note 4(b)(iii) to the financial statements.
In addition to the above, Malta’s grey-listing by the FATF during the financial year ended 31 December 2021 has compounded the level of
economic uncertainty within the local markets. The estimated economic impact of the grey-listing remains difficult to gauge, since this is
highly dependent on the speed at which Malta exits grey-listing, the effectiveness of national efforts to address the findings, as well as
the response from foreign investors. Significant judgement is required in order to assess the potential impact of the FATF grey-listing on
the local economy. In this respect, expert judgement was applied by management when determining the appropriateness of selected
macroeconomic scenarios and their respective probability weights, with judgemental overlay adjustments being applied as referred to
previously.
Notes on the financial statements
142
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
In view of the above, management considered the sensitivity of the ECL outcome to the macro-economic forecasts by recalculating the
ECL under the different scenarios, applying a 100% weighting to each scenario. The effect of economic uncertainty on the ECL outcome
is disclosed in the sensitivity analysis presented in Note 4(b)(iii) within the section entitled ‘Economic scenarios sensitivity analysis of ECL
estimates’. The ECL calculated for the upside and downside scenarios should not be taken to represent the upper and lower limits of
possible ECL outcomes as there is a high degree of estimation uncertainty in the numbers representing tail risk scenarios when assigned
a 100% weighting.
(b)Policyholder claims and benefits
The estimation of future benefit payments and premiums arising from long-term insurance contracts is one of the local group’s most
critical accounting estimates. The determination of the liabilities under long-term insurance contracts is dependent on estimates made by
the local group. Estimates are made as to the expected number of deaths for each of the years in which the local group is exposed to
risk. The local group bases these estimates on industry standard mortality tables that reflect recent historical mortality experience,
adjusted where appropriate to reflect the local group’s own experience. The estimated number of deaths determines the value of the
future benefit payments. The main source of uncertainty is that epidemics such as AIDS, SARS, pandemic flu, swine flu, Covid-19 and
wide-ranging lifestyle changes, such as in eating, smoking and exercise habits, could result in future mortality being significantly worse
than in the past for the age groups in which the local group has significant exposure to mortality risk. New estimates are made each
subsequent year to reflect the current long-term outlook.
Estimates are also made as to future investment income arising from the assets backing long-term insurance. These estimates are based
on current market returns as well as expectations about future economic and financial developments. Interest rate assumptions for the
purposes of valuing liabilities as at reporting date are based on the EIOPA yield curve.
Appropriate margins were taken for bond portfolio and equities/property portfolio. If the average future investment returns differ by
+/-1% from management’s estimates, the insurance liability would decrease by €14,771,000 (2020: €16,794,000) or increase by
€7,391,000 (2020: €27,249,000). In this case there is no relief arising from reinsurance contracts held. If the number of deaths in future
years differ by +/-10% from management’s estimate, the liability would increase by €1,261,000 (2020: €1,264,000) or decrease by
€1,454,000 (2020: €1,430,000). If the expenses in future years differ by +/-10% from management’s estimate, the liability would increase
by €1,735,000 (2020: €1,197,000) or decrease by €1,615,000 (2020: €1,075,000). These impacts are calculated before considering
changes to other assets and liabilities which may offset the gross impacts of these changes.
The local group holds two sets of expense overrun provisions, one in respect of an ’investment contract’ portfolio that is in run-off related
to a specific fixed expense and another in respect of the ‘insurance contract’ portfolio to allow for potential future shortfalls arising for the
period that per-policy costs are forecasted to be higher than current assumptions.             
•In setting the first provision, judgements are made in relation to the future management actions to reduce the fixed expenses in line
with the run-off of the portfolio. Should these actions not be executed, this may lead to a negative impact on Profit before tax of circa
€15m for the local group.
•In setting the second provision, the potential future expense shortfalls are reliant on achieving the new business sales plan. A 25%
reduction to the future volumes will lead to a negative impact on Profit before tax of circa €10m in respect of the insurance business.
(c)Present value of in-force long-term assurance business (‘PVIF’)
The PVIF measures the shareholder’s share of the future profits that are expected to be earned in future years attributable to the long-
term life insurance business in force at the valuation date. Policies classified as investment contracts are excluded. The approach is to
take a present value of the expected future shareholder cash flows discounted using the risk discount rate.
The risk free rate of return used within the valuation is the EIOPA yield curve as at 31 December 2021 and 31 December 2020 allowing
adjustments using the Smith Wilson method for (1) Credit Risk Adjustment of 10bps, and (2) the EIOPA yield curve is set to the Last
Liquid Point (‘LLP’) of 20 years, and then extrapolated to the Ultimate Forward Rate (‘UFR’) of 3.75% (2020: 3.75%). The risk discount rate
is set to the risk free curve with no margins.
The PVIF valuation assumes lapse rates varying by product and duration in-force that range from 0.2% to 18.3% p.a. (2020: from 0.2% to
18.3% p.a.). Expense inflation is calculated as a blend of wage inflation and price inflation, with the latter based on an adjusted French
inflation curve. This results in a term dependent expense inflation assumption increasing from 2.3% p.a. to 2.9% p.a. (2020: 1.8% p.a. to
2.2% p.a.).
The local group has limited lapse experience pertaining to some of its products and therefore draws comparisons to other internal lapse
experience on similar business. This is a source of estimation uncertainty, and a change in lapse assumptions could impact the result of
future accounting periods. In the case of the Inheritance Tax Planning product, the impact of any change to lapse rates will be highly
material. During 2021, as a result of sustained low lapse experience, the likelihood of these impacts and their materiality, the insurance
subsidiary has introduced an overlay adjustment that reduces the PVIF as included in Note 32.
As the valuation models are based upon assumptions, changing the assumptions will change the resultant estimate of PVIF. The local
group is exposed to the risk of increased uncertainty to changes in assumptions as a result of Covid-19. The impact of reasonably
possible changes in main assumptions on the PVIF are disclosed in Note 32. Assumptions are reviewed annually by the local group’s
Board of Directors.
59
Comparative financial information
With effect from the current financial year, items in course of transmission to other banks are being presented as a separate line item on
the face of the Statement of financial position. It was previously presented within other liabilities.
In this respect, comparative figures presented in the Statement of financial position have been reclassified to conform with the current
year’s presentation for the purposes of fairer presentation. The presentation of the Statement of financial position as at 31 December
2019 was not deemed necessary taking cognisance of the nature and significance of the reclassification.
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
143
Five-year comparison: Income statements and statements of
comprehensive income
Group income statements
2021
2020
2019
2018
2017
€000
€000
€000
€000
€000
Interest receivable and similar income
105,710
113,598
120,573
118,943
132,850
Interest expense
(7,952)
(7,696)
(10,462)
(10,321)
(12,190)
Net interest income
97,758
105,902
110,111
108,622
120,660
Net non-interest income
33,535
27,521
41,672
41,779
42,029
Change in expected credit losses and other credit impairment charges
995
(25,589)
(389)
(3,488)
—
Loan impairment charges
N/A
N/A
N/A
N/A
1,168
Operating expenses
(105,406)
(97,391)
(120,685)
(108,357)
(114,034)
Profit before tax
26,882
10,443
30,709
38,556
49,823
Tax expense
(9,127)
(2,871)
(10,541)
(9,860)
(18,968)
Profit for the year
17,755
7,572
20,168
28,696
30,855
Earnings per share
4.9c
2.1c
5.6c
8.0c
8.6c
Group Statements of Comprehensive Income
2021
2020
2019
2018
2017
€000
€000
€000
€000
€000
Profit for the year
17,755
7,572
20,168
28,696
30,855
Other comprehensive income
Items that will be reclassified subsequently to profit or loss when specific
conditions are met:
Debt instruments measured at fair value through other comprehensive income/
available-for-sale investments:
(6,095)
753
311
(3,592)
(4,739)
–  fair value (losses)/gains
(9,377)
1,159
478
(5,527)
(7,290)
–  income taxes
3,282
(406)
(167)
1,935
2,551
Items that will not be reclassified subsequently to profit or loss:
Properties:
2,150
304
(475)
382
—
–  surplus/(loss) arising on revaluation
2,389
338
(528)
424
—
–  income taxes
(239)
(34)
53
(42)
—
Defined benefit obligation:
292
(446)
(619)
(334)
—
–  remeasurement of defined benefit obligation
450
(686)
(952)
(514)
—
–  income taxes
(158)
240
333
180
—
Equity instruments designated at fair value through other comprehensive income:
1
2
—
1,045
N/A
–  fair value gains
2
3
—
1,608
N/A
–  income taxes
(1)
(1)
—
(563)
N/A
Other comprehensive income, net of tax
(3,652)
613
(783)
(2,499)
(4,739)
Total comprehensive income
14,103
8,185
19,385
26,197
26,116
Five-year comparison
144
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Five-year comparison: Statements of financial position
2021
2020
2019
2018
2017
€000
€000
€000
€000
€000
Assets
Balances with Central Bank of Malta, Treasury Bills and cash
1,496,407
996,679
586,072
190,768
164,059
Items in course of collection from other banks
4,453
4,959
3,436
5,404
18,158
Financial investments designated at fair value attributable to insurance operations
N/A
N/A
N/A
N/A
727,270
Financial assets mandatorily measured at fair value through profit or loss
767,808
733,670
754,020
694,081
N/A
Held for trading derivatives
4,640
6,574
5,320
4,956
5,175
Loans and advances to banks
619,273
589,259
676,031
1,097,714
1,059,308
Loans and advances to customers
3,196,725
3,264,664
3,257,433
3,110,412
3,128,833
Financial investments
845,735
877,485
943,603
904,920
926,096
Prepayments and accrued income
20,558
24,148
23,578
27,312
24,236
Current tax assets
3,669
1,813
1,719
16,728
13,911
Reinsurance assets
77,972
80,083
78,945
85,205
85,887
Assets attributable to disposal group held for sale
—
—
—
—
473,797
Other non-current assets held for sale
6,673
8,919
8,422
5,908
7,411
Investment property
1,600
1,600
9,788
9,714
10,600
Property, plant and equipment
41,923
44,206
47,403
55,413
56,308
Intangible assets
50,168
54,342
61,518
59,136
64,062
Right-of-use assets
2,569
4,200
4,685
—
—
Deferred tax assets
29,119
27,130
22,427
21,509
16,488
Other assets
5,513
10,728
13,217
21,814
16,384
Total assets
7,174,805
6,730,459
6,497,617
6,310,994
6,797,983
Liabilities
Deposits by banks
1,397
3,754
840
2,542
54,703
Customer accounts
5,621,195
5,272,961
4,976,580
4,887,473
4,765,995
Items in the course of transmission to other banks
21,573
21,372
23,473
15,206
30,495
Held for trading derivatives
4,592
6,551
5,190
4,991
5,228
Accruals and deferred income
21,976
14,843
20,335
19,151
17,838
Current tax liabilities
499
88
2,489
538
—
Liabilities under investment contracts
185,137
170,865
183,706
166,347
203,136
Liabilities under insurance contracts
658,197
648,028
658,470
620,781
658,792
Provisions for liabilities and other charges
21,252
21,031
33,271
20,689
20,099
Deferred tax liabilities
15,005
17,562
22,443
23,427
26,295
Borrowings from group undertaking
60,000
—
—
—
—
Subordinated liabilities
62,000
62,000
62,000
62,000
29,277
Liabilities attributable to disposal group held for sale
—
—
—
—
473,797
Other liabilities
12,245
12,990
38,854
29,071
33,290
Total liabilities
6,685,068
6,252,045
6,027,651
5,852,216
6,318,945
Total equity
489,737
478,414
469,966
458,778
479,038
Total liabilities and equity
7,174,805
6,730,459
6,497,617
6,310,994
6,797,983
Memorandum items
Contingent liabilities
143,064
152,296
158,654
149,783
122,959
Commitments
967,739
1,071,319
1,075,524
1,433,773
1,215,457
Five-year comparison
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
145
Five-year comparison: Statements of cash flows
2021
2020
2019
2018
2017
€000
€000
€000
€000
€000
Net cash from/(used in) operating activities
745,603
158,480
(204,056)
(71,376)
(156,694)
Cash flows from investing activities
Dividends received
—
33
29
18
—
Interest received from financial investments
11,897
14,746
16,229
20,091
32,305
Purchase of financial investments
(221,697)
(214,787)
(315,277)
(242,523)
(139,115)
Proceeds from sale and maturity of financial investments
249,667
263,519
270,965
254,972
231,950
Purchase of property, plant and equipment, investment property and intangible
assets
(8,508)
(7,677)
(6,980)
(5,194)
(2,999)
Proceeds on sale of property, plant and equipment, investment property and 
intangible assets
56
7,903
1,865
1,300
—
Net cash flows from/(used in) investing activities
31,415
63,737
(33,169)
28,664
122,141
Cash flows from financing activities
Dividends paid
(2,717)
—
(8,197)
(38,409)
(20,610)
Proceeds from borrowings from group undertaking
60,000
—
—
—
—
Issue of subordinated liabilities
—
—
—
62,000
—
Repayment of subordinated liabilities
—
—
—
(29,277)
(58,158)
Net cash from/(used in) financing activities
57,283
—
(8,197)
(5,686)
(78,768)
Net increase/(decrease) in cash and cash equivalents
834,301
222,217
(245,422)
(48,398)
(113,321)
Five-year comparison
146
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
Five-year comparison: Accounting ratios
2021
2020
2019
2018
2017
%
%
%
%
%
Net operating income before loan impairment charges to total assets
1.8
2.0
2.3
2.4
2.4
Operating expenses to total assets
1.5
1.4
1.9
1.7
1.7
Cost efficiency ratio
80.3
73.0
80.2
73.0
70.9
Profit before tax to total assets
0.4
0.2
0.5
0.6
0.7
Profit before tax to equity
5.6
2.2
6.5
8.4
10.4
Profit after tax to equity
3.7
1.6
4.3
6.1
6.5
2021
2020
2019
2018
2017
Shares in issue (millions)
360.3
360.3
360.3
360.3
360.3
Net assets per 30 cents share (cents)
135.9
132.8
130.4
127.3
133.0
Earnings per 30 cents share (cents)
4.9
2.1
5.6
8.0
8.6
Dividend per 30 cents share (cents)
–  gross
3.42
1.16
1.70
5.80
17.10
–  net
2.22
0.75
1.10
3.80
11.10
Dividend cover
2.2
2.8
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2.1
0.8
Five-year comparison
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
147
Branches and offices
Malta offices
Registered Office/Head Office
116 Archbishop Street, Valletta VLT 1444
Tel: 2380 2380
Wealth and Personal Banking
Business Banking Centre
80 Mill Street, Qormi QRM 3101
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Wealth Management Office
Business Banking Centre
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80 Mill Street, Qormi QRM 3101
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Birkirkara
1 Naxxar Road BKR 9049
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Gzira
196 The Strand GZR 1023
Tel: 2380 2380
Mosta
63 Constitution Street MST 9058
Tel: 2380 2380
Paola
12 Antoine De Paule Square PLA 1261
Tel: 2380 2380
Qormi
80 Mill Street QRM 3101
Tel: 2380 2380
Rabat
12 Saqqajja Square RBT 1190
Tel: 2380 2380
Sliema
High Street SLM 1549
Tel: 2380 2380
Swieqi
St Andrew’s Road SWQ 9020
Tel: 2380 2380
Valletta
32 Merchants Street VLT 1173
Tel: 2380 2380
Zejtun
25th November Avenue ZTN 2018
Tel: 2380 2380
Zurrieq
38 High Street ZRQ 1318
Tel: 2380 2380
Gozo office
Victoria
90 Republic Street VCT 1017
Tel: 2380 2380
Subsidiary companies
HSBC Global Asset Management (Malta) Limited
Business Banking Centre
80 Mill Street Qormi QRM 3101
Tel: 2380 5128
HSBC Life Assurance (Malta) Ltd
Business Banking Centre
80 Mill Street Qormi QRM 3101
Tel: 2380 8699
Branches and offices
148
HSBC Bank Malta p.l.c. Annual Report and Accounts 2021
© Copyright HSBC Bank Malta p.l.c. 2021
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ISSN 1811-7570
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Pages 3,4: Andrew Gauci Attard
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HSBC Bank Malta p.l.c.
116 Archbishop Street
Valletta VLT 1444
Malta
Telephone: 356 2380 2380
www.hsbc.com.mt

PwC_fl_4cp.eps

Independent auditor’s report

To the Shareholders of HSBC Bank Malta p.l.c.

 

Report on the audit of the financial statements

Our opinion

 

In our opinion:

 

·      The Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair view of the Group and the Parent Company’s financial position of HSBC Bank Malta p.l.c. as at 31 December 2021, and of the Group’s and the Parent Company’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the EU; and

·      The financial statements have been prepared in accordance with the requirements of the Maltese Banking Act (Cap. 371) and the Maltese Companies Act (Cap. 386).

 

Our opinion is consistent with our additional report to the Audit Committee.

 

What we have audited

 

HSBC Bank Malta p.l.c.’s financial statements comprise:

 

·    the Consolidated and Parent Company income statements and statements of comprehensive income for the year ended 31 December 2021;

·       the Consolidated and Parent Company statements of financial position as at 31 December 2021;

·       the Consolidated and Parent Company statements of changes in equity for the year then ended;

·       the Consolidated and Parent Company statements of cash flows for the year then ended; and

·       the notes to the financial statements, which include significant accounting policies and other explanatory information.

 

Basis for opinion

 

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Independence

 

We are independent of the local group and the bank in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) together with the ethical requirements of the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Cap. 281) that are relevant to our audit of the financial statements in Malta. We have fulfilled our other ethical responsibilities in accordance with these Codes.

 

To the best of our knowledge and belief, we declare that non-audit services that we have provided to the bank and its subsidiaries are in accordance with the applicable law and regulations in Malta and that we have not provided non-audit services that are prohibited under Article 18A of the Accountancy Profession Act (Cap. 281).

 

The non-audit services that we have provided to the bank and its subsidiaries, in the period from 1 January 2021 to 31 December 2021, are disclosed in note 17 to the financial statements.

 

 

Our audit approach

 
Overview

 

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·     Overall group materiality: €1.4 million, which represents 5% of profit before tax adjusted for non-recurring items.

·      The audit carried out by the group engagement team covered all the components within the local group as at and for the year ended 31 December 2021 comprising HSBC Bank Malta p.l.c. and its subsidiaries HSBC Life Assurance (Malta) Ltd and HSBC Global Asset Management (Malta) Limited, which are all based in Malta.

 

·       Credit loss allowances in respect of loans and advances to customers of the local group and bank

·       Measurement of non-linked life insurance contract liabilities and of the present value of in-force business (PVIF)

 

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

 

Materiality

 

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

 

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

 

Overall group materiality

€1,447,000

How we determined it

5% of profit before tax adjusted for non-recurring items

Rationale for the materiality benchmark applied

We chose the profit before tax adjusted for non-recurring items as the benchmark because in our view it is the benchmark against which the performance of the local group is most commonly measured by users and is a generally accepted benchmark.

We chose 5% which is within the range of quantitative materiality thresholds that we consider acceptable. 

 

In relation to the audit of the financial statements of HSBC Life Assurance (Malta) Ltd for the year ended 31 December 2021, we have applied a higher materiality of €3,300,000 solely for the purpose of identifying and evaluating the effect of misstatements that are likely only to lead to a reclassification between line items within assets and liabilities.

 

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €72,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

 

Key audit matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

Key audit matter

How our audit addressed the Key audit matter

Credit loss allowances in respect of loans and advances to customers of the local group and bank

Credit loss allowances in respect of loans and advances to customers represent management’s best estimate of expected credit losses (‘ECLs’) within the loan portfolios at the balance sheet date. The development of the models designed to estimate ECLs on loans measured at amortised cost in accordance with the requirements of IFRS 9 requires a considerable level of judgement since the determination of ECLs is subject to a high degree of estimation uncertainty. The outbreak of the Covid-19 pandemic has exacerbated the level of uncertainty around the calculation of ECLs, giving rise to heightened subjectivity in the determination of model assumptions used to estimate key model risk parameters and hence necessitating a higher level of expert judgement.

In general, the local group calculates ECL by using the following key inputs: probability of default (‘PD’), loss given default (‘LGD’) and exposure at default (‘EAD’).  The maximum period considered when measuring ECL is the maximum period over which the local group is exposed to credit risk.  The bank also applies overlays where management’s view is that the calculated ECLs based on these key inputs do not fully capture the risks within the local group’s portfolios.

Credit loss allowances relating to all loans and advances within the Wholesale portfolio are determined at an instrument level.  For non-defaulted (Stages 1 and 2) exposures, the bank uses an ECL model that relies on risk parameters, specifically proxy PDs, determined at HSBC Group level. Through-The-Cycle (‘TTC’) PDs are determined by reference to a Global Master Scale which captures historical default rates at credit rating level observed in respect of similar portfolios held by the HSBC Group across a number of countries. TTC PDs are converted to Point-in-Time (‘PiT’) PDs on the basis of correlations attributable to the proxy country/portfolio within the HSBC Group that has the credit risk characteristics which are most similar to those of the local group’s portfolio. In addition, the output proxy PD is further adjusted using a scalar to reflect local macroeconomic conditions. 

The LGD used for the Wholesale portfolio is driven by the loan-to-value ratio of the individual facilities and takes into account other assumptions, including market value haircut (which includes costs to sell), time to sell and the impact of discounting the collateral from the date of realisation back to the date of default.

The LGD modelling methodology utilises historical experience, which might result in limitations in its reliability to appropriately estimate ECLs especially during periods characterised by unprecedented economic conditions such as those currently experienced as a result of the Covid-19 pandemic. 

In order to address these modelling limitations, the bank has applied overlays based on expert judgement to reflect the risks that downturn LGD materialises, which risks are not captured by the model.

For defaulted (Stage 3) exposures within the Wholesale portfolio, discounted cash flow models are utilised in order to estimate ECLs. Judgement is required to determine when a default has occurred and then to estimate the expected future cash flows related to that loan which are dependent on parameters or assumptions such as the valuation of collateral (including forced sale discounts and assumed realisation period) or forecasted operating cash flows.  The bank is also required to assess multiple scenarios in this respect, which scenarios will have probabilities attached.

Credit loss allowances relating to all loans and advances within the Retail portfolio (Stages 1, 2 and 3), comprising mortgages, personal loans and overdrafts as well as credit cards are determined through the use of ECL models.

The models are used to calculate ECLs based on key assumptions, such as loss rates (reflecting a combined impact of PDs and EADs) and loss severities (including the impact of implied cure rates, valuation haircuts of collateral in the case of mortgages, and  recovery rates). Loss rates and LGDs are estimated using internally developed statistical models and historical model development data based on the bank’s own experience as available at the reporting date.  The LGD for the mortgage portfolio is also driven by the loan-to-value ratio of exposures, taking into account similar assumptions as those applied for the Wholesale portfolio. The model for loss severities in respect of the mortgage portfolio takes into consideration multiple work-out options. The loss severities for the remaining Retail portfolios is based on the local group’s recovery history.

The local impact of the pandemic has been mitigated by a number of government programmes and measures, including general payment moratoria which have given rise to the deferral of payments of capital and/or interest over time periods that potentially extended until the end of the current financial reporting period.  This factor has increased the level of uncertainty around judgements made in determining the timing of defaults and in respect of staging, particularly within the mortgage portfolio.  For the purposes of avoiding the cliff edge effect on ECLs upon expiry of the moratoria and the unwinding of government support schemes, an overlay was applied by the bank determined on the basis of qualitative characteristics to enable the identification of significant increase in credit risk (‘SICR’) or Unlikeliness-to-Pay (‘UTP’) events as early as possible.

Under IFRS 9, the bank is also required to formulate and incorporate multiple forward-looking economic conditions, reflecting management’s view of potential future economic variables and environments, into the ECL estimates. A number of macroeconomic scenarios based on the selected macroeconomic variables are considered to capture non-linearity across credit portfolios.  The complexity attributable to this factor requires management to develop multiple macroeconomic scenarios involving the use of significant judgements.  The bank utilises a methodology to generate the economic inputs applied within the ECL models.

The outbreak of Covid-19 and the government support and relief measures adopted to mitigate it have significantly impacted macroeconomic factors such as GDP and unemployment, increasing the uncertainty around judgements made in determining the severity and likelihood of macroeconomic forecasts across the different economic scenarios used in ECL models. Overly sensitive ECL modelled outcomes can be observed when current conditions fall outside the range of historical experience.

The level of uncertainty has been exacerbated by Malta’s inclusion in the list of jurisdictions under increased monitoring, referred to as the grey-list, by the Financial Action Task Force (‘FATF’) during the year ended 31 December 2021.  This gave rise to an elevated level of uncertainty in respect of judgements made in determining macroeconomic forecasts underlying the different economic scenarios used in ECL models.  The bank has applied overlays based on expert judgement to reflect risks that are not fully captured by the ECL models.

Data used in the impairment calculation is sourced from a number of systems, including systems that are not necessarily used for the preparation of accounting records. This increases risk around completeness and accuracy of certain data used to create assumptions and operate the models. In some cases, data is unavailable and reasonable alternatives have been applied to allow calculations to be performed.

Since the estimation of ECLs is subjective in nature and inherently judgemental, the bank’s application of the IFRS 9 impairment requirements is deemed to be an area of focus, especially in the context of Covid-19, which has had an unprecedented impact on the economy and has significantly increased the level of estimation uncertainty around the calculation of credit loss allowances. 

We focused on credit loss allowances due to the subjective nature of specific data inputs into the calculation and the subjective judgements involved in both timing of recognition of impairment and the estimation of the size of any such impairment.

Accordingly, summarising the key areas relevant to the bank’s measurement of ECLs would include:

·       Allocation of assets to stage 1, 2, or 3 using criteria in accordance with IFRS 9;

·       Accounting interpretations and modelling assumptions used to build the models that calculate the ECL;

·       Completeness and accuracy of data used to calculate the ECL;

·       Inputs and assumptions used to estimate the impact of multiple macroeconomic scenarios; and

·       Measurements of individually assessed provisions including the assessment of multiple scenarios.

 

Relevant references in the financial statements:

·       Accounting policies: Note 3(b);

·       Credit risk management: Note 4(b);

·       Note on Change in expected credit losses and other credit impairment charges: Note 15;

·       Note on Loans and advances to customers: Note 24; and

·       Critical accounting estimates and judgements: Note 58(a).

 

During our audit of the financial statements for the year ended 31 December 2021, we continued to focus on the key drivers of the estimation of ECL. Apart from assessing the continuing appropriateness of management assumptions, updates to key parameters and new assumptions and enhancements, largely driven by the Covid-19 pandemic, were evaluated and tested. Discussions with the Audit Committee included:

·       inputs, assumptions and adjustments to ECL, in particular changes to risk factors and other inputs within the bank’s models, for which we provided updates on the results of our testing procedures;

·       the application of forward economic guidance, including the severity and magnitude of modelled scenarios, particularly in the context of the estimated impact of the Covid-19 pandemic; 

·       considerations around post model adjustments, mainly in response to the impact of Covid-19 and Malta’s grey-listing, and the estimation uncertainty involved in determining ECLs on the basis of historical experience; and

·       individually significant loan impairments.

ECL calculation for non-defaulted Wholesale exposures and for all Retail exposures

We understood and critically assessed the models used for ECL estimation in both Wholesale and Retail portfolios. Since modelling assumptions and parameters are based on historic data, we assessed the impact of the unprecedented circumstances we are currently experiencing on the adequacy of key model parameters, since these are based on historical experience that is not necessarily reflective of the current level of credit risk within the portfolios. The appropriateness of management’s judgements was also independently considered in respect of calculation methodologies, calibration of PDs/loss rates and LGDs, segmentation, selection of macroeconomic variables and post-model overlays.  Model calculations were also tested independently.

The design and operating effectiveness of key controls management has established across the processes

relevant to the ECL models were tested as follows:

·       Model performance monitoring, including reconciliation of model parameters against approved models.

·       Review and challenge of multiple economic scenarios by an expert panel and internal governance committee.

·       Inputs of critical data into source systems, and the flow and transformation of data between source systems to the impairment calculation engine.

·       User acceptance testing over the automated calculation of ECLs, in case of amendments to the model, to ensure it is performed in line with business requirements.

·       Review and challenge to assess ECL output and approval of overlays.

 

We determined that we could rely on these controls for the purposes of our audit.

 

Substantive procedures were performed as follows:

·       Performed an overall assessment of the ECL provision levels by stage to determine if they were reasonable considering the bank’s portfolio, risk profile, credit risk management practices and the macroeconomic environment.

·       Tested a sample of loans within the Wholesale portfolio to independently review the borrower’s financial performance and ability to meet loan repayments and assess the appropriateness of the credit rating assigned by management, taking into consideration the impact of Covid-19 on the repayment capabilities of the sampled borrowers.

·       Challenged the criteria used to allocate an asset to stage 1, 2 or 3 in accordance with IFRS 9 and tested assets in stage 1, 2 and 3 to verify that they were allocated to the appropriate stage.

·       Tested the completeness and accuracy of the critical data, extracted from the underlying systems, that is utilised within the models for the purposes of the year end ECL calculation.

·       Reviewed the SAS script codes for the impairment engine against business requirements and our expectations of how the calculation should operate.

·       Risk based testing of models, including a review of the continuing appropriateness of model assumptions. We tested the assumptions, inputs and formulas used in ECL models on a sample basis. This included assessing the appropriateness of model design and formulas used, and recalculating PDs, LGDs and EADs on a sample basis.

·       For the Wholesale portfolio, assessed the reasonableness of modelled PDs through a comparison of historically predicted and observed default rates, taking into consideration the potential postponement in timing of defaults due to government support programmes and measures, and the adequacy of modelled LGDs in light of the potential impact of the pandemic and Malta’s grey-listing by the FATF on local property prices.

·       For the Mortgage portfolio, assessed the reasonableness of market value haircuts and time to sell assumptions used as inputs to modelled LGDs, in light of the potential impact of the pandemic and Malta’s grey-listing on local property prices. Additionally, we assessed the appropriateness of the post model overlay intended to address early identification of SICR or UTP events in respect of those exposures to which the bank extended general payment moratoria or which benefitted from Government support schemes or measures.

·       For the Mortgage portfolio, assessed the potential risks associated with unperfected collateral in order to evaluate the potential implications on the estimation of ECL.

·       Independent testing of model calculations.

·       Tested the multiple macroeconomic scenarios and variables using our experts to assess their reasonableness. We assessed the appropriateness of changes effected to factor the impact of the pandemic, including the recalibration of probability weights. We assessed whether the severity of the forecasted macroeconomic variables was appropriate in view of the pandemic and the high level of uncertainty surrounding the economic conditions. We challenged the correlation and impact of the macroeconomic factors on the ECL.

Our testing of models and model assumptions did not highlight material differences.

Based on the evidence obtained, we found that the model assumptions, data used within the models and overlays to be reasonable.

ECL calculation for defaulted Wholesale exposures

For defaulted exposures within the Wholesale portfolio, the appropriateness of the methodology and policy used to calculate ECLs was independently assessed. We understood and evaluated the processes for identifying default events within loan portfolios, as well as the impairment assessment processes.

In respect of defaulted exposures, the design and operating effectiveness of key controls established by management were tested over:

·       The timeliness of the performance and review of the credit file review processes.

·       The determination of which loans and advances are credit-impaired, including the timely identification of such defaulted exposures.

We determined that we could rely on these controls for the purposes of our audit.

Substantive procedures were performed in respect of identification of defaults as follows:

·       Assessed critically the criteria used by management for identifying borrowers whose financial performance was particularly impacted by Covid-19 and for determining whether a UTP/default event had occurred by testing a sample of loans with characteristics that might imply a default event had occurred (for example a customer experiencing financial difficulty or material sector disruption) to challenge whether default events had actually occurred and to assess whether default events had been identified by management in a timely manner.

·       Selected a sample of performing loans, including from within those sectors that we consider to have been significantly impacted by the pandemic, which had not been identified by management as potentially defaulted, to form our own judgement as to whether management’s judgement was appropriate and to further challenge whether all relevant events had been identified by management.

Substantive procedures were performed on defaulted exposures in respect of the estimation of the size of the respective ECL provisions, as follows:

·       Reviewed the credit files of a selected sample of corporate loans to understand the latest developments at the level of the borrower and the basis of measuring the ECL provisions and considered whether key judgements (such as market value haircuts and time to sell for gone concern assessments) were appropriate given the borrowers’ circumstances taking cognisance of the pandemic.

·       Challenged the appropriateness of the scenarios being applied for the exposures referred to above, particularly in respect of the extent to which they consider the potential impact of the pandemic on the local property market, together with their respective probability weights, by forming an independent view of the market value haircuts and time to sell assumptions used by the bank under different scenarios in determining the recoverability of the selected corporate loans.

·       Challenged the reasonableness of the use of a going concern assessment in respect of a sample of individually significant defaulted exposures, as well as the appropriateness of the methodology applied by management to estimate ECL under a going concern scenario.

·       Tested key inputs to and reperformed the impairment calculation used to derive expected cash flows under different scenarios.

·       Assessed the appropriateness of a sample of property valuations securing impaired loans through our experts.

·       The perfection of security in line with the bank’s policy.

 

In the case of some impairment provisions, we formed a different view from that of management, but in our view the differences were within a reasonable range of outcomes.

Measurement of non-linked life insurance contract liabilities and of the present value of in-force business (PVIF)

Management’s valuation of the provisions for the settlement of future non-linked claims attributable to life insurance contracts and of the PVIF involves complex and subjective judgements about future events, both internal and external to the business, for which small changes in assumptions can result in material impacts to the valuation of these items.  We focused on this area due to the materiality and subjectivity of the judgements made.

Economic assumptions (investment return and associated discount rates) and non-economic assumptions (mortality, lapse rates and expenses associated with servicing policies), including the respective margins applied, are the key inputs to which the carrying amounts of these long-term liabilities and intangible asset are highly sensitive. Changes to assumptions can materially impact the local group’s estimates. Future estimation uncertainty is heightened as a result of the ongoing Covid-19 pandemic.

 

Relevant references in the financial statements are:

·      Accounting policies: Notes 3(h) and 3(m);

·      Note on Intangible assets: Note 32

·      Note on Liabilities under insurance contracts: Note 40 and

·      Critical accounting estimates and judgements: Note 58(c).

 

 

Our audit procedures addressing the valuation of the local group’s non-linked life insurance contract liabilities and of the PVIF included the following procedures using our actuarial expert team members:

·       we tested the accuracy of the underlying data utilised for the purposes of measurement by reference to its source;

·       we applied our industry knowledge and experience in comparing the methodology, models and assumptions used to recognised actuarial practices; and

·       we tested management’s controls in respect of the valuation and assumption setting processes, and we assessed management’s key judgements throughout the processes.

In respect of the assumptions underlying the measurement of the non-linked life insurance contract liabilities, we performed the following procedures using our actuarial expert team members:

·        we assessed the assumptions for investment mix and projected investment returns by reference to company-specific and market observable data (EIOPA curve);

·        we considered the appropriateness of the mortality assumptions by reference to local group and industry data on historical mortality experience and expectations of future mortality; and

·        we tested the future expense assumption by understanding and challenging the basis on which expenses are projected and allocated between new business and renewals, and by reference to market observable data (inflation curve).

The following procedures in relation to the assumptions underlying the valuation of the PVIF were performed, also through the involvement of our actuarial expert team members:

·       we leveraged the testing performed in relation to those assumptions that are aligned with the insurance contract liability valuation, reviewing the differences in margins applied between the two; and

·       we considered the appropriateness of the lapse rate assumptions by reference to local group data, considering the results of management’s analysis of recent lapse experience.

In respect of all the assumptions referred to above, we have reviewed management’s approach to setting the assumptions, assessed the assumptions’ appropriateness based on internal and external data, and tested management’s governance and controls over the assumption basis review.

We also reviewed the modelled results and manual adjustments, and we assessed the reasonableness of management’s analysis of the changes in the carrying amounts. 

We also assessed the appropriateness of the disclosures within the financial statements, including reference to related uncertainties brought about by the ongoing Covid-19 pandemic, and sensitivity analysis around the key assumptions.

Based on the work performed, we found the valuation of the non-linked life insurance contract liabilities and the present value of in-force business to be consistent with the explanations and evidence obtained.

 

How we tailored our group audit scope

 

The local group is composed of three components: HSBC Bank Malta p.l.c. (the “Parent Company” or “bank”), and its subsidiaries HSBC Life Assurance (Malta) Ltd, which is determined to be a financially significant entity, and HSBC Global Asset Management (Malta) Limited.

 

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the local group, the accounting processes and controls, and the industry in which the local group operates.

 

The audit team of the local group performed all of this work by applying the overall materiality at the level of the local group’s consolidated financial statements, together with additional procedures performed on the consolidation. This gave us sufficient appropriate audit evidence for our opinion on the local group financial statements as a whole.  

 

Other information

 

The directors are responsible for the other information. The other information comprises all of the information presented in the Annual Report and Accounts 2021 (but does not include the financial statements and our auditor’s report thereon).

 

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon except as explicitly stated within the Report on other legal and regulatory requirements.  

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of the directors and those charged with governance for the financial statements

 

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs as adopted by the EU and the requirements of the Maltese Banking Act (Cap. 371) and the Maltese Companies Act (Cap. 386), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the directors are responsible for assessing the local group’s and the bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the local group or the bank or to cease operations, or have no realistic alternative but to do so.

 

Those charged with governance are responsible for overseeing the local group’s financial reporting process.

 

Auditor’s responsibilities for the audit of the financial statements

 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

 

·     Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

·      Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the local group’s and the bank’s internal control.

·      Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

·      Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the local group’s or the bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the local group’s or the bank’s ability to continue as a going concern. In particular, it is difficult to evaluate all of the potential implications that Covid-19 will have on the local group’s and the bank’s trade, customers and suppliers, and the disruption to their business and the overall economy.

·     Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

·     Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the local group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

Report on other legal and regulatory requirements

Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6

 

We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (the “ESEF Directive 6”) on the Annual Financial Report of HSBC Bank Malta p.l.c. for the year ended 31 December 2021, entirely prepared in a single electronic reporting format.

 

Responsibilities of the directors

 

The directors are responsible for the preparation of the Annual Financial Report, including the consolidated financial statements and the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.

 

Our responsibilities

 

Our responsibility is to obtain reasonable assurance about whether the Annual Financial Report, including the consolidated financial statements and the relevant electronic tagging therein, complies in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.

 

Our procedures included:

 

·     Obtaining an understanding of the entity's financial reporting process, including the preparation of the Annual Financial Report, in accordance with the requirements of the ESEF RTS.

·      Obtaining the Annual Financial Report and performing validations to determine whether the Annual Financial Report has been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.

·     Examining the information in the Annual Financial Report to determine whether all the required taggings therein have been applied and whether, in all material respects, they are in accordance with the requirements of the ESEF RTS.

 

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Opinion

 

In our opinion, the Annual Financial Report for the year ended 31 December 2021 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.

 

 

Other reporting requirements

 

The Annual Report and Accounts 2021 contains other areas required by legislation or regulation on which we are required to report. The Directors are responsible for these other areas.

 

The table below sets out these areas presented within the Annual Financial Report, our related responsibilities and reporting, in addition to our responsibilities and reporting reflected in the Other information section of our report. Except as outlined in the table, we have not provided an audit opinion or any form of assurance.

 

Area of the Annual Report and Accounts 2021 and the related Directors’ responsibilities

Our responsibilities

Our reporting

Report of the Directors

The Maltese Companies Act (Cap. 386) requires the Directors to prepare a Report of the Directors, which includes the contents required by Article 177 of the Act and the Sixth Schedule to the Act.

We are required to consider whether the information given in the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements.     

 

We are also required to express an opinion as to whether the Report of the Directors has been prepared in accordance with the applicable legal requirements.

 

In addition, we are required to state whether, in the light of the knowledge and understanding of the bank and its environment obtained in the course of our audit, we have identified any material misstatements in the Report of the Directors, and if so to give an indication of the nature of any such misstatements.

 

With respect to the information required by paragraphs 8 and 11 of the Sixth Schedule to the Act, our responsibility is limited to ensuring that such information has been provided.

In our opinion:

·       the information given in the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and

·       the Report of the Directors has been prepared in accordance with the Maltese Companies Act (Cap. 386).

 

We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.

 

Statement of Compliance with the Code of Principles of Good Corporate Governance

The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare and include in the Annual Financial Report a Statement of Compliance with the Code of Principles of Good Corporate Governance within Appendix 5.1 to Chapter 5 of the Capital Markets Rules.  The Statement’s required minimum contents are determined by reference to Capital Markets Rule 5.97.  The Statement provides explanations as to how the bank has complied with the provisions of the Code, presenting the extent to which the bank has adopted the Code and the effective measures that the Board has taken to ensure compliance throughout the accounting period with those Principles.

 

We are required to report on the Statement of Compliance by expressing an opinion as to whether,   in light of the knowledge and understanding of the bank and its environment obtained in the course of the audit, we have identified any material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5, giving an indication of the nature of any such misstatements.

 

We are also required to assess whether the Statement of Compliance includes all the other information required to be presented as per Capital Markets Rule 5.97.

 

We are not required to, and we do not, consider whether the Board’s statements on internal control included in the Statement of Compliance cover all risks and controls, or form an opinion on the effectiveness of the bank’s corporate governance procedures or its risk and control procedures.

In our opinion, the Statement of Compliance has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority.

 

We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.

Remuneration report

The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare a Remuneration report, including the contents listed in Appendix 12.1 to Chapter 12 of the Capital Markets Rules.

We are required to consider whether the information that should be provided within the Remuneration report, as required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets Rules, has been included.

In our opinion, the Remuneration report has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority.

 

Other matters prescribed by the Maltese Banking Act (Cap. 371)

In terms of the requirements of the Maltese Banking Act (Cap. 371), we are also required to report whether: 

·        we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

·        proper books of account have been kept by the bank, so far as appears from our examination of those books;

·        the bank’s financial statements are in agreement with the books of account;

·        in our opinion, and to the best of our knowledge and according to the explanations given to us, the financial statements give the information required by any law which may from time to time be in force in the manner so required.

In our opinion:

·       we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

·       proper books of account have been kept by the bank, so far as appears from our examination of those books;

·       the bank’s financial statements are in agreement with the books of account; and

·       to the best of our knowledge and according to the explanations given to us, the financial statements give the information required by any law in force in the manner so required.

 

 

Other matters on which we are required to report by exception

We also have responsibilities under the Maltese Companies Act (Cap. 386) to report to you if, in our opinion, adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us.

 

We also have responsibilities under the Capital Markets Rules to review the statement made by the directors that the business is a going concern together with supporting assumptions or qualifications as necessary.

We have nothing to report to you in respect of these responsibilities.

 

Other matter – use of this report

 

Our report, including the opinions, has been prepared for and only for the bank’s shareholders as a body in accordance with Article 179 of the Maltese Companies Act (Cap. 386) and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior written consent.

 

 

 

Appointment

 

We were first appointed as auditors of the local group and the bank on 22 April 2015.  Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 7 years.

 

 

 

PricewaterhouseCoopers

78, Mill Street

Zone 5, Central Business District

Qormi

Malta

 

 

Fabio Axisa

Partner

 

24 February 2022