549300X34UUBDEUL1Z91 2023-01-01 2023-12-31 iso4217:EUR 549300X34UUBDEUL1Z91 2022-01-01 2022-12-31 549300X34UUBDEUL1Z91 2023-01-01 2023-12-31 ifrs-full:RetainedEarningsMember iso4217:EUR xbrli:shares 549300X34UUBDEUL1Z91 2023-12-31 549300X34UUBDEUL1Z91 2022-12-31 549300X34UUBDEUL1Z91 2021-12-31 549300X34UUBDEUL1Z91 2022-12-31 ifrs-full:ClassesOfShareCapitalMember 549300X34UUBDEUL1Z91 2022-12-31 ifrs-full:RevaluationSurplusMember 549300X34UUBDEUL1Z91 2022-12-31 ifrs-full:RetainedEarningsMember 549300X34UUBDEUL1Z91 2023-01-01 2023-12-31 ifrs-full:RevaluationSurplusMember 549300X34UUBDEUL1Z91 2023-12-31 ifrs-full:ClassesOfShareCapitalMember 549300X34UUBDEUL1Z91 2023-12-31 ifrs-full:RevaluationSurplusMember 549300X34UUBDEUL1Z91 2023-12-31 ifrs-full:RetainedEarningsMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:ClassesOfShareCapitalMember ifrs-full:PreviouslyStatedMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:RevaluationSurplusMember ifrs-full:PreviouslyStatedMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:RetainedEarningsMember ifrs-full:PreviouslyStatedMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:PreviouslyStatedMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:RetainedEarningsMember ifrs-full:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIFRSsMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIFRSsMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:ClassesOfShareCapitalMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:RevaluationSurplusMember 549300X34UUBDEUL1Z91 2021-12-31 ifrs-full:RetainedEarningsMember 549300X34UUBDEUL1Z91 2022-01-01 2022-12-31 ifrs-full:RetainedEarningsMember 549300X34UUBDEUL1Z91 2022-01-01 2022-12-31 ifrs-full:RevaluationSurplusMember 549300X34UUBDEUL1Z91 2022-12-31 ifrs-full:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIFRSsMember
HSBC Bank Malta p.l.c.
Annual Report and Accounts 2023

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
2 | Chairman’s Statement
5 | Chief Executive Officer’s review
16 | Board of Directors and Company Secretary
18 | Executive Committee and Head of Internal Audit
21 | Report of the Directors
53 | Directors’ Responsibilities Statement
54 | Statement of compliance with the Code of Principles of Good Corporate Governance
62 | Remuneration Report
69 | Financial Statements
69 | Income statements
70 | Statements of comprehensive income
71 | Statements of financial position
72 | Statements of changes in equity
74 | Statements of cash flows
75 | Notes on the financial statements
185 | Five-Year comparison: Income statements and statements of comprehensive Income
186 | Five-Year comparison: Statements of financial position
187 | Five-Year comparison: Statements of cash flows
187 | Five-Year Comparison: Accounting ratios
188 | Branches and offices

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 1

Chairman’s Statement

John Bonello, HSBC Bank Malta p.l.c. Chairman
We are happy to be announcing a very satisfactorily level of profits and proposed dividends for 2023. This was the result of the bank benefitting
from both a full year of favourable interest rates and from the hard work that has been put in to managing the risks of our business and the
efficiency of our operations and costs. The local economy has also performed remarkably well despite the turbulent international environment
which has seen a worrying increase in negative geopolitical events. The dominant sentiment continues to be uncertainty. Good news regarding
falling inflation rates in the major economies is quickly dampened by concerns over trade disruptions and the increased costs those bring with
them. Locally, inflation has become an issue that is receiving attention, however the economic outlook remains good.
Our bank remains fully focused on providing an enhanced experience for our customers and our employees. We will not lose sight of the fact
that we are committed to remain a safe and compliant bank and our determination to combat financial crime will continue for the benefit of the
bank, our customers, our people and the jurisdiction in general. At the same time, we will continue to invest in our customer experience through
our digital offerings, in a completely new ATM network, and in our new offices the first phase of which was opened in early 2024. We are very
proud of the innovative environment our new offices present for our people and customers.
A new Collective Agreement was signed after a detailed collaborative process with the MUBE which had a fair and satisfactory conclusion in
early 2024.
In 2024, we will be working hard to meet our reporting obligations under the Corporate Sustainability Reporting Directive (‘CSRD’) regulations
which will oblige the market to report on the progress we all have to make to meet our sustainability responsibilities.
Results
The reported profit before tax for the year ended 31 December 2023 was €133.9m, or 141% compared to 2022. This represents an increase of
€78.3m when compared with the prior year. The bank’s improvement in performance was driven by increasing net interest income and higher
profits from the insurance subsidiary. We continued experiencing improvement in the credit quality of our loan portfolio resulting in releases of
expected credit losses. Operating cost increased mainly driven by investment in people and technology.
More details on the financial results can be found in the CEO’s review.
Profit attributable to shareholders amounted to €86.8m, resulting in earnings per share of 24.1 cent compared with 10.0 cent in 2022.
The bank’s capital ratios improved marginally with CET1 increasing from 18.5% to 20.6% and the total capital ratio increasing from 21.3% to
23.5%. This improvement was driven by increased profits for the year and higher revaluation reserves on our Hold-to-Collect investment
portfolio partially offset by higher capital deductions for non-performing loans as we continue to gradually implement the capital requirements.
The bank 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. The Board has thus
recommended a dividend pay-out ratio of 40% on reported profits.
The final gross dividend will be 15.0 cents per share (9.75 cents per share net of tax).
Chairman’s Statement

2 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Our regulatory environment
During the course of 2023, the focus on prudential risk management by the regulatory and supervisory authorities continued, focusing mainly on
the bank’s governance and risk management activities as well as credit risk. The bank’s business model remained aligned to the principle of
sustainable 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, including credit risk, which was undertaken as a result of the European Central Bank’s direct supervision and its supervisory
priorities. During this period, regulatory engagement was mainly focused on ensuring that governance and prudential risk management
structures, procedures and internal controls are operating effectively. 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
Sustainable Finance Disclosure Regulation (‘SFDR’). Furthermore, preparatory work is underway in order to ensure compliance with upcoming
new EU Regulations in relation to payments, namely, the Payments Services Regulations and Instant Payments, as well as the Digital
Operational Resilience Act.
Throughout 2023, the bank remained in close engagement with regulators and industry bodies during the consultation and ongoing
implementation processes of other regulatory changes. 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
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 take pride in HSBC colleagues who contribute to the charities and causes
that they feel passionate about. In this regard, we grant all our employees a paid day to take leave and volunteer for work in the community.
The Foundation is, furthermore, immensely grateful for the support and guidance of our highly experienced HSBC Malta Foundation Board
members.
During 2023, 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. Our aim is to achieve net zero in our own operations and supply chain
by 2030 or sooner. We make regular and transparent disclosures to communicate our progress in line with guidelines set out by the Taskforce
on Climate-related Financial Disclosures guidelines. We encourage our customers and clients to do the same. HSBC Bank Malta p.l.c. is also
one of the founding members of the Malta ESG Alliance. The objectives of MESGA are to share a common vision for societal change and a
competitive Malta; bring benefits to the community; commit to credible, tangible and quantifiable initiatives; tap ESG market opportunities for
businesses and the Maltese Islands; regular measuring and reporting progress on initiatives; and motivate businesses sharing the same values
to follow and join.
Currently the HSBC Malta Foundation is sponsoring two 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. This project which is being driven by the HSBC Malta Foundation in partnership with The Malta Chamber of
Commerce, Enterprise, and Industry, is entitled 'Maximising energy efficiency through building renovation: HSBC Case Study'. Through this
foundational study, HSBC is paving the way for more advanced research and policymaking and is leading the transition towards more
sustainable Maltese buildings. Featuring its offices in Qormi as a pivotal case study, HSBC is taking a leadership role in the transition to high
energy efficiency and low-carbon office buildings in Malta. It’s a ground-breaking project.
Every year, the HSBC Malta Foundation earmarks part of its funding for causes that are important to our community. During 2023, the
Foundation supported a number of projects including the Prince’s Trust International Achieve Programme, the JAYE (Young Enterprise) Malta
Foundation, The Malta Chamber of Commerce, 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 for the benefit of the
community we serve.
We concluded the year with another demonstration of community spirit and holiday generosity, thus bringing essential support and festive
cheer to those in need. Collaborating with 34 non-governmental organizations (NGOs) across Malta, the Foundation has ensured that the joy and
warmth of the festive season reach many, particularly those who are most vulnerable. This year's initiative, larger and more encompassing than
ever, involved the collection and distribution of a diverse range of items. The donations spanned from basic necessities such as food and
personal care items to more specific requests like children's gifts and educational materials. The collective effort of HSBC employees, alongside
contributions from some of our top clients and various local schools was a testament to the power of community involvement.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 3

Representatives from the HSBC Malta Foundation and the NGOs which brought essential support and festive cheer to those who are most vulnerable
The HSBC Malta Foundation's Christmas initiative stands as a shining example of the community and solidarity achievable when individuals and
organizations unite to make a positive difference during the festive season. Participating NGOs included The Maltese Association of the
Sovereign Order of Malta, Dar Frate Jacoba, Smiling with Jerome, Dar Bjorn, Suret il-Bnieden, The National Foster Care Association, RISe, The
Ursuline Sisters, Dar Hosea, the MCAST Student Services, Caritas Malta, The Life Network Foundation, FSWS – Aġenzija Sedqa, St Jean Antide
Foundation, SOAR, Richmond Foundation, YMCA, The Soup Kitchen in Valletta, The Malta Trust Foundation, Building Bridges, S.T.A.N.D., Loop
Malta, Hospice Malta, Fondazzjoni Sebħ, Fidem, Dar il-Kaptan, Osanna Pia Home, Inspire, Kummissjoni Djakonija Żurrieq, The Foodbank Lifeline
Foundation and Fondazzjoni Dar il-Hena, each contributing significantly to the welfare of different groups within the community.
Our Board of Directors
During 2023, Henri Mizzi relinquished his post of Non-Executive Director of the bank with effect from 31 October 2023, following his
appointment as a Judge in the Superior Courts of Malta. His replacement will be announced in due course. In 2023, the process to obtain
regulatory approval for Alexiei Dingli, a Professor of Artificial Intelligence (AI), to become a member of the Board of HSBC Bank Malta p.l.c.
commenced. He was then formally appointed upon receipt of his regulatory approval in January 2024. This is reflective of the bank’s efforts in
digitalisation and to modernise its approach. Alexiei Dingli replaced Yiannos Michaelides who had reached the end of his tenure with the Bank.
The Board of Directors is grateful for Yiannos’ contributions over the years with his technical knowledge and commercial experience.
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.
Our People
The success of our bank will always be largely down to the quality of our people and I have to congratulate and thank all our employees for the
effort they put in to serve our customers. I must firstly congratulate management for their outstanding leadership through the year.
Our bank is led by a highly professional, multi-skilled and committed management team. But it does not stop there. Throughout the organisation
we are fortunate to have people who are equally professional and proud to be part of HSBC and the global brand it represents. I would therefore
like to express my gratitude and that of our Board to all our people who work diligently every day to deliver HSBC’s services to our customers in
compliance with the highest standards.
Looking ahead
Despite the uncertainties that the global situation presents, I have no doubt that our customers will continue to build on past success and will be
seeking investment opportunities to grow their business. We will continue to eagerly support those opportunities that are aligned to our values.
We will also continue to leverage our unique ability to connect Maltese companies to the global economy.
I will conclude by expressing my gratitude to you, our shareholders, for your 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 21 February 2024
Chairman’s Statement

4 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Chief Executive Officer’s review

Geoffrey Fichte, CEO, HSBC Bank Malta p.l.c.
2023 was characterised by economic and geo-political uncertainty which was exacerbated by prevailing inflationary pressures as a result of the
Russia-Ukraine war and the tumultuous and tragic situation in the Middle East. Shock waves were, and to a large extent, are still being felt
globally and nationally.
Thankfully, Malta’s economy has been resilient despite the volatile international environment and it is encouraging to note that the European
Commission is forecasting that Malta will continue its strongest economic growth among EU countries this year as well. Malta’s economy is
robust with the lowest unemployment and fastest population growth in Europe. Key sectors remain strong. Nevertheless, we should be
cautious given heightened external threats.
In these uncertain times, the role of HSBC Bank Malta p.l.c. as a key player in the banking industry, and the leading international financial
institution in Malta, is even more pronounced. HSBC Bank Malta p.l.c. remains an active participant in the local economy and we are committed
to continue offering the best service both to our customers and to the community we serve.
Despite the external economic environment, we succeeded in delivering innovative solutions to our customers and have invested time, effort
and capital in identifying and realising opportunities to grow the business for the long-term and offering a world of opportunity to our customers.
We are proud that in 2023, during the Interim financial results in August, the dividend pay-out was higher than the full dividend paid in 2022.
Our share price was the top performer in the Malta Stock Exchange in 2023, increasing by over 80%. Our annualized dividend yield was the
highest amongst listed banks in Malta.
The financial results being presented show a strong performance which clearly demonstrates that our strategy is delivering tangible results and
I’m confident that our future-focused and customer-centric strategy positions HSBC Bank Malta p.l.c. well for long-term success. The bank
achieved strong growth in profit in 2023 and the bank’s fundamentals remain robust and underlying performance was resilient.
We remain focused on the future, with a very strong appetite to grow our bank in a sustainable manner. We will continue to invest in our
business to meet the dynamic and evolving needs of our customers.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 5

Our lines of business, Commercial Banking and Wealth, Personal Banking and Global Markets, continue to grow from their respective areas of
strength and are looking to grow by maximising sustainable finance opportunities, leveraging our international advantage, maintaining proactive
cost management and robust risk management. We continue to adhere to the compliance standards aligned to local regulations and the HSBC
Group which are a source of strength, stability and competitive advantage. We work diligently to support growth in Malta’s economy by
facilitating new business and cross-border trade.
Our people are the cornerstone of the bank so we will continue to empower our employees to reach their full potential and be the best versions
of themselves by investing in opportunities for colleagues to develop skills, learn new capabilities and adapt to the future, whilst reducing
complexity and bureaucracy.
It is to their collective credit that in 2023 HSBC Bank Malta p.l.c. was the recipient of renowned awards like Banker of the Year from the
Financial Times (December 2023), Market Leader and Best Service from Euromoney Cash Management Survey (November 2023) and Market
Leader and Best Service Provider from Euromoney Trade Finance Survey (March 2023).
From left: Jesmond Apap, Head of Global Markets; Michel Cordina, Executive Director and Head of Business Development; Joyce Grech, Head of Commercial Banking; John Bonello,
Chairman; Charlotte Cilia, Chief Financial Officer; Geoffrey Fichte, Chief Executive Officer
The work of the HSBC Malta Foundation, extensively detailed in the Chairman’s Statement, is profoundly impactful for all the beneficiaries in our
community. In Malta, the bank fulfils the Group’s Corporate Sustainability strategy primarily through the HSBC Malta Foundation. The three
pillars of the HSBC Malta Foundation, aim to improve the quality of life and education for children, especially those disadvantaged, to promote
and work towards a more sustainable environment and to preserve Malta’s rich and unique historical heritage.
Currently the HSBC Malta Foundation is supporting five key initiatives :-
– The Human Capital Research Project with a donation of €135,000;
– The maximising energy efficiency through building renovation: ‘HSBC Case Study’, a research project with a donation of €120,000;
– The Prince’s International Achieve Programme with a donation of €121,000 (we have been supporting this programme for the last eight
years);
– The JAYE Young Enterprise Programmes with a donation of €150,000 (we have been supporting this programme since 1999);
– The Nature Based Solutions Project with a donation of €160,000.
Lastly, but equally important, I am immensely proud of our newly refurbished offices in Qormi – HSBC Hub. We have significantly invested in
the transformation of the Qormi complex to turn it into a state of the art office for colleagues and customers. With a capital investment of €30
million, the HSBC Hub was the largest workplace investment project in HSBC Europe for 2022 and 2023, that will now facilitate flexible working
and maximise user experience – employees and customers alike. The completion of the first phase of the project saw a percentage of our
workforce working from the new premises on 22 January 2024, as we look forward to welcoming the rest in 2025.
Chief Executive Officer’s review

6 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

In conclusion, I would like to express my sincere thanks and gratitude to our Board and my colleagues for their dedication, hard work and
support in 2023.
Performance
We delivered strong revenue growth across all three global businesses, supported by increasing net interest income, which enabled us to
deliver our best return on equity in more than a decade. As well as improving financial performance, our strategy is increasing shareholder
returns. The reported profit before tax for the year ended 31 December 2023 was €133.9m. This represents an increase of €78.3m or 141%
compared to prior year.
Reported profit attributable to shareholders was €86.8m, resulting in earnings per share of 24.1 cents compared with 10.0 cents in the same
period in 2022.
Net interest income increased by 81% to €195.8m compared to prior year due to the higher interest rate environment. The increase in net
interest income is largely driven by higher interest on placement of excess liquidity.
Net fee income decreased by €2.2m compared to 2022 to €19.5m. This was driven by the removal of the high balance fee in July 2022, which
was a customer-driven decision taken by the bank in view of the rising interest rate environment. We have seen good growth in transaction
banking and higher volumes of international payments.
Net trading income was in line with 2022 income at €7.6m as we continue to strengthen and deepen our relationships with our corporate and
retail customers. As the leading international bank in the market, we have continued to offer a comprehensive range of award winning
transaction banking services, including foreign exchange and other hedging products.
Operating costs for the year increased by 3% and amounted to €102.4m. The increase in expenses is mainly attributable to an increase in staff
costs of €3.7m as we continue to invest in our people, being our main asset. This was partially offset by an insurance refund received in 2023
and costs savings on our real estate portfolio.
During the year, we reported a release of expected credit losses (ECL) of €4.6m, compared to a release of €9.6m in 2022. In 2022, our
Commercial Banking business reported a net release of €12.3m which was mainly attributable to a significant recovery on a commercial non-
performing loan which was largely provided for in prior years. The release in 2023 is across retail and commercial banking driven by an
improvement in the credit quality of our customers as well as improved forward economic outlook.
The effective tax rate was 35.2%. This translated into a tax expense of €47.1m, €27.7m higher than the expense for 2022. The increase in tax
expense resulted mainly from increased profits.
HSBC Life Assurance (Malta) Ltd reported a profit before tax of €6.2m compared to a profit of €3.9m in 2022. On 1 January 2023, HSBC
adopted IFRS 17 ‘Insurance Contracts’. As required by the standard, we applied the requirements retrospectively with comparative data
previously published under IFRS 4 ‘Insurance Contracts’ restated from the 1 January 2022 transition date. The positive variance in profitability of
€2.3m is mainly attributable to a positive variance on the mark to market gains of the insurance asset portfolio.
Net loans and advances to customers decreased by €91.3m to €3,084m. Commercial balances decreased by €19.8m while retail balances
decreased by €71.5m. The bank retained a prudent credit policy to ensure long term sustainability of its service proposition while also delivering
value for its shareholders. It also continued to improve asset quality by reducing commercial non-performing loans by 14% and retail non-
performing loans by 20%.
Customer deposits grew by 3% to €6,142m driven by an increase in commercial deposits. The bank maintained a healthy advance to deposit
ratio of 50.2% and its liquidity ratios remained well in excess of regulatory requirements.
The financial investments portfolio increased by 31% to €1,316m. In 2023, we increased the size and duration of our structural hedges to
reduce the sensitivity of banking net interest income to interest rate movement and stabilise future earnings. We also see a number of
opportunities from our existing strategy to continue to grow revenue.
The bank’s common equity tier 1 capital was 20.6% at 31 December 2023, compared to 18.5% at the end of 2022. The total capital ratio
increased to 23.5% compared to 21.3% at 31 December 2022. The improvement in the capital ratios was driven by increased profits and higher
revaluation reserves on our Hold-to-Collect investment portfolio partially offset by higher capital deductions for non-performing loans as we
continue to gradually implement the capital requirements. The bank maintained a strong capital base and is fully compliant with the regulatory
capital requirements.
The bank is determined to maintain a strong capital base, at the same time recognising the importance of dividends to our shareholders. In view
of the strong results, the Board has recommended a dividend pay-out ratio of 40% on reported profits. The final gross dividend will be 9.0 cents
per share (5.85 cents per share net of tax) which brings the total dividend for 2023 to 15.0 cents (9.75 cents net of tax). This is the highest
annual dividend paid in the last decade. The final dividend will be paid on 25 April 2024 to shareholders who are on the bank’s register of
shareholders on 19 March 2024, subject to approval at the Annual General Meeting scheduled for 18 April 2024.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 7

Wealth and Personal Banking (‘WPB’)
2023 has brought various challenges impacting the business through rising cost of living pressures, an increasingly tight labour market and a
volatile macro-environment. Despite having to navigate through these challenges, we have managed to deliver and exceed our financial
projections, delivering strong results also helped by the favourable interest rate environment.
We have continued to focus on our customer strategy by improving our Premier and Advance customer propositions through enhanced
customer features and benefits, which has led us to increase the number of customers that trust us with their day-to-day banking relationship,
choosing HSBC as their main Bank.
2023 Premier and Advance billboard campaign ads.
We have continued to grow digital channel usage, with over 96% of basic transactions now carried out through our internet and mobile banking
platforms. During 2023, customer adoption of HSBC Malta’s Mobile Banking App increased by 9% and mobile logins increased by 14% on
previous year. We have also deployed the Soft Token for internet and mobile banking, delivering simpler digital banking tools. Our mobile
banking platform features were also enhanced to provide customers with a better user experience.
Helping our customers in providing them with best-in-class credit facilities remains key to HSBC. Given the external environment, a prudent
credit policy was retained for both secured and unsecured lending to ensure the long-term sustainability of our service proposition.
In 2023, we continued to launch new products, journeys and initiatives, primarily in Wealth Management. Product launches include the Key Five
Critical Illness Cover, which is a unique stand-alone protection product in the market and the Fixed Maturity Portfolio investment fund providing
our customers exposure to euro corporate bonds in a low-risk fund with a fixed maturity date and income paid annually. There were strong
marketing campaigns throughout the year which have contributed to enhanced activity and market presence.
Chief Executive Officer’s review

8 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

We have also launched a non-Advisory guided journey for the Group Employee Pension Plan product as well as embedding an enhanced
advisory journey to meet the sustainability preferences of our customers and our regulatory obligations as part of the MIFID II sustainability
requirements.
We have continued to implement a number of transformational regulatory projects following new legislations that came into force, safeguarding
the interests of our customers. During 2023, we have deployed a new front-end insurance quotation system helping to improve customer
journey. We have also continued to invest in our new Card Management System and a New Mortgage Management System which will be
deployed in 2024 bringing about an improved offering with online access for customers to view related transactions. We have also embarked on
a new project to replace our ATM fleet by 2025.
The well-being of our people remains the pillar of our performance and success, and in 2023 we have sustained this through technical and soft-
skill training held both online and face-to-face. We have continued to empower our people by investing in their development and recognising
achievements throughout the year which is essential to the continued motivation and engagement of our teams.
As we look ahead to 2024, we remain focused on growing our bank sustainably for the future, centred around our customers, connecting them
to the highest growth potential and providing them with best-in class customer service whilst we continue to embed our Environmental, Social
and Governance strategy.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 9

Commercial Banking (‘CMB’)
In a year characterised by concerns about inflation, increasing market interest rates and threats of global recession, businesses across the world
continued to face uncertain times. In this environment, we remained close to our customers with a view to supporting them with any financing
needs as well as by giving them access to the wealth of knowledge and resources offered by the HSBC Group.
Through our various services and products, we helped customers find ways of addressing these challenges. This included an in-person event
held for customers where a senior HSBC Global Economist gave his views and insights on the World economy in 2023. During the year, we
noted higher demand for lending and again experienced an increase in the total value of new loans and other facilities approved to customers,
which were up by c.17% on prior year. We expect drawdown of these facilities in the coming year. This healthy level of new lending included a
facility to an international, blue chip company, which was agreed jointly with another European office of HSBC. This was the first time HSBC
Malta participated in such a facility – we have put in place the necessary structures to participate in similar facilities in the future, allowing us to
utilise our surplus liquidity while diversifying our lending portfolio. We were very pleased to increase our collaboration with the Malta
Development Bank with the launch of the SME Guarantee Scheme (SGS) and the Guaranteed Co-Lending Scheme (GCLS). These business
lending schemes, which remain available until the end of 2024, are designed to address applications the market is not always able to
accommodate by providing financing facilities to support productive and viable operations.
Our Trade and Receivables Finance area continued to perform strongly and again generated increased revenue following the growth seen in
2022, thanks to our focus on providing our customers with our award winning products and solutions which enable them to trade internationally
and domestically. Revenues were up by c. 8%, with growth emanating from all areas including guarantees, core trade and structured funding
products. Funded balances under our Trade Loan and Receivables Finance portfolios increased by c. 30% year on year, thanks to our continued
focus on these forms of structured lending. We have continued to leverage on our strength as members of the HSBC Group, which was named
Global Best Bank for Trade Finance for the 6th consecutive year in the Euromoney Trade Finance Survey 2023. We were delighted to be
awarded Market Leader and best service provider for Trade Finance in Malta in the same survey and are grateful to our customers who
participated and expressed their views. Foreign exchange revenue also grew by c. 7%, thanks to a growth in volumes resulting from a strong
collaboration with our Global Markets team and close interactions with our customers.
In the past year, we continued to see an increase in deposit balances held with us and are very encouraged by the confidence placed in us by
our customers who trust us with their deposits. The volume of payments routed through our customers’ accounts continued to increase, driving
up revenues from this source. International payments were up by c. 17% while we processed c. 25% more direct debits than prior year. This
was achieved thanks to a good number of newly onboarded customers, including international ones, where we saw c. 40% increase in the
volume of new accounts opened compared to 2022. We also continued with our activity to foster deeper relationships with existing customers
leading to increasing account usage, coupled with a focus on digitisation of payments and reduction in cheque volumes. We were delighted that
we were named as the overall Market Leader and Best Service for Non-Financial Institutions in the prestigious Euromoney Cash Management
Survey 2023. These accolades underscore HSBC Malta's strong commitment to excellence in cash management services and its leadership
overall in the sector.
In an ongoing effort to increase usage of our HSBCnet online banking platform, we hosted a number of training webinars for our customers on
key topics. Such training enables customers to make more use of the various functionalities of this platform, saving time when making
payments and processing other transactions and gaining access to the information they need instantly. HSBCnet and mobile penetration and
usage remained fairly stable. During the year we launched BBX, a simplified, user friendly interface of the HSBCnet landing page aimed at Small
and Medium Sized businesses (SMEs). Following this launch, we are reaching out to customers who are currently non-HSBCnet users in order
to outline the benefits and functionalities of the platform, and ultimately drive up penetration.
Chief Executive Officer’s review

10 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

At the end of the year, we again launched an online survey where customers were asked to rate their experience with the service that we
provide. This survey is now run annually and its results help us address areas where our customers would like to see improvement. The level of
customer satisfaction remained strong, and on a par with the prior year. We were again very pleased that customers continued to value the
quality of their Relationship Managers and scored them highly with respect to knowledge and proactivity. We will take additional steps to
improve certain customer processes and thereby increase the ease of doing business with us.
Late in the year, as part of our ongoing support to TradeMalta, we sponsored a further edition of TradeMalta’s popular Go Global programme,
which is aimed at companies that are seeking to expand internationally. We also continued supporting the Malta Chamber’s ongoing operations,
following the renewal of a Gold Partnership agreement for a further three years announced in 2022. We are pleased to have the opportunity to
further support local businesses and the economy through these activities and sponsorships.
In July 2023, TradeMalta launched an HSBC-backed Go Global Programme fostering internationalisation of Malta-based companies
As we did throughout 2023, we will continue to focus on adding value to our customers and giving them access to all that the HSBC Group has
to offer. We can only do this thanks to our dedicated and professional Relationship Managers and other team members, who are committed to
help their customers address challenges and take their businesses forward. We continue to provide our teams with the required tools and with
the ongoing training needed to enable them to understand customer needs and stay informed about issues that have an impact on the ever-
changing business environment.
Global Markets (‘GM’)
2023 has been another challenging year for Global Markets. GM continues to successfully deliver on its strategy to provide best in class
services to local and international customers, leveraging on the expertise available across the HSBC Group’s worldwide network.
Revenues from foreign exchange are in line with that of last year as we continued to face external market challenges. Collaboration with CMB
and WPB remains one of GM’s strategic priorities. It allows CMB and WPB clients to benefit from GM’s product expertise, in particular for
foreign exchange and interest rate risk management solutions, where we continue to see good potential. CMB clients also continue to benefit
from digital solutions for foreign exchange. Throughout the year GM has organised a number of seminars for CMB and WPB clients, inviting
industry leading specialists. The highlight for the year was the one delivered by our Global Economist.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 11

James Pomeroy, Global Economist during a breakfast meeting organised by HSBC Bank Malta p.l.c.
Corporate Centre (‘CC’)
Markets Treasury (Corporate Centre), which manages Interest Rate Risk on the bank’s balance sheet and deploys surplus liquidity, delivered
excellent results in line with the prevailing interest rate environment with revenues substantially up on last year. The bank continues to have
significant surplus liquidity which is mainly invested in securities and money market placements. Both the Hold to Collect and Sell as well as the
Hold to Collect securities portfolio are mainly invested in high quality liquid assets, reflecting our conservative risk appetite.
Digital Business Services (‘DBS’)
The COO and DBS are playing a pivotal role in supporting our business to deliver on the strategic commitments by managing the day-to-day
operations and enabling uninterrupted services to our customers, driving transformation and regulatory changes through digital solutions,
focusing on improving customer journeys and internal processes, safeguarding our customers and business resilience through robust
framework of controls and monitoring. DBS teams are also positioned at the forefront of driving the Sustainability and Net Zero initiatives for the
bank.
Throughout 2023, Digital Banking Services remained committed to implementing critical strategic transformation initiatives, fostering
digitisation, automation, and heightened efficiency in pivotal customer experiences associated with Payments, Cards and Mortgages.
Achievements included the improvements in the way the new and replacement cards are issued, providing faster card-issuing services for our
customers; the deployment of the new mortgages system which will enable customers to view their mortgage transactions online; and the
automation of internal card processes, releasing valuable time for our colleagues to focus on value adding activities. This was possible by
continuous investment in the new technology and improvements of the existing systems functionality.
During 2023, we continued to focus on Sustainability and driving our Net Zero targets and achieved material progress in the reduction of Carbon
Emissions, Energy Consumption, Waste and Paper Consumption through ongoing initiatives, such as using low carbon materials for
construction (saving of 89.7 tonnes of CO2e through innovative concrete production), reusing of existing HSBC furniture from other sites (saving
of 71 tonnes of CO2e), and encouraging customers to switch from paper correspondence to using digital channels (reduction of yearly paper
consumption by 183 thousand sheets of paper).
The HSBC HUB project to transform our office buildings in Qormi is the largest capital expenditure project for HSBC in Europe, creating
innovative, sustainable, and modern space for our customers and HSBC colleagues, with one of the largest single floor office spaces in Malta
(over 2,330sqm). The project has successfully progressed with the first phase of the project opening its doors on the 22nd of January 2024,
welcoming 230 colleagues and offering multi use meeting rooms and conference spaces. In addition to delivering a number of Net Zero
initiatives, HSBC HUB interior design and supporting technological investment enables our colleagues to adapt new ways of working with open
plan shared collaborative spaces, flexible system of booking the time in the office and facilities for organising team and customer events.
Chief Executive Officer’s review

12 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

HSBC Hub - Main Reception
HSBC Hub - Customer Reception

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 13

DBS teams are part of wider HSBC European DBS team, leveraging on the knowledge, expertise and support of our colleagues across 12
countries. In summer 2023, colleagues from IT and the Chief Controls Office teams have won awards under two different categories, ‘Believe in
our Vision’ and ‘Take Pride in what we do’ at the DBS Europe awards ceremony.
Looking ahead to 2024, DBS Malta strategy is focused around supporting the growth of our business by running seamless operations, delivering
innovative, digital customer journeys, delivering on Net Zero targets and supporting our people by maintaining engaging and motivating work
environment. Key deliverables in plan for 2024 are commencing the project to modernise our ATM fleet and completion of the second phase of
HSBC HUB in Qormi.
Our people
Our people and the community we serve remain at the heart of our business. We champion inclusion and diversity and firmly believe that
employee engagement and personal growth are key drivers for the provision of excellent customer service. Throughout 2023, we renewed our
overall people focus and provided our people with opportunities to realise their career aspirations and tools to safeguard their well-being.
Shortly following his appointment, we hosted a series of face to face discussions with all senior managers in the presence of HR, articulating
strategy and listening to feedback and any concerns keeping the main focus on “our people”. These meetings established a close connection
across senior management and a commitment to maintain open two-way communication which is so important for our people.
2023 was also important from an Industrial Relations perspective. Collective Agreement negotiations with the Malta Union of Bank Employees
(MUBE) for the new Collective Agreement (effective from January 2024) commenced in April and progressed throughout the year. In January
2024, the Bank announced the signing of a new collective agreement with MUBE for the period 2024-2026. The agreement was signed in
Malta, and then validated at HSBC Continental Europe’s HQ in Paris by its CEO, Andrew Wild, and the CEO of HSBC Bank Malta p.l.c., with
representatives of MUBE present. HSBC Continental Europe is the majority shareholder of HSBC Bank Malta p.l.c. This ambitious and ground-
breaking agreement is characterised by significant enhancements to employee pay, benefits and retirement pension plans.
From left: Nadianne Azzopardi, Human Resources Advisory, HSBC Bank Malta p.l.c.; David Perotti, Head of Human Resources, HSBC Bank Malta p.l.c.; Andrew Wild, CEO, HSBC Continental
Europe; William Portelli, MUBE President; Geoffrey Fichte, CEO, HSBC Bank Malta p.l.c.; Josef Figallo, Chair of MUBE Group Committee; Amanda Camenzuli, Secretary of MUBE Group
Committee
Snapshot 2023 (internal bank-wide employee survey) registered a significant improvement in participation and in key engagement indexes.
Flexible (including remote) working practices continue to be engrained in our business thereby facilitating a healthy work/life balance for our
people.
Our Internship proposition was again successfully implemented throughout 2023 in collaboration with the University of Malta and other
educational institutions to recruit students and provide them with a rich working experience. This year we again welcomed back several
students who returned to HSBC as full time employees after completing their studies. We strongly believe in the importance of engaging with
our future talent, thereby providing future pipeline for the business.
Opportunities for career development continued throughout 2023 with employees applying for job opportunities across the bank and its
subsidiaries. Many were promoted in the process. Succession planning for key roles is also ongoing. Three of our senior managers were
selected to join the 2023 intake of HSBC’s prestigious Inspire Programme tailored for individuals recognised as having the potential to become
senior leaders within HSBC Continental Europe.
Throughout the year we organised various sessions for our employees focusing on topics of interest including mental, physical and financial
well-being. Employees actively participated in these sessions and further such initiatives are planned for 2024.
We submitted 13 nominations for the HBCE Energy Awards and won an award for International Collaboration. A great achievement for our
people to be recognised alongside HBCE colleagues.
Chief Executive Officer’s review

14 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

We will continue investing in our people and look forward to celebrating together during the upcoming HSBC Bank Malta p.l.c. 25th anniversary
celebrations.
Majority shareholder
HSBC Continental Europe (HBCE) holds a direct shareholding of c. 70.03% in HSBC Bank Malta p.l.c. Ultimate control of the HSBC Malta Group
remains vested in HSBC Holdings plc.
Outlook
I am cautiously optimistic of the economic outlook for 2024 in view of volatile inflationary pressures and geopolitical tensions.
HSBC Malta is committed to the local economy and will continue to invest to provide its customers, shareholders and the community at large
the highest standards in banking services.
As a systemic bank and the leading international bank in Malta, HSBC remains fully committed to continue its digitalisation journey and to offer
local and global products and services to our customers, supporting them to realise their personal and business ambitions.
We will pursue our growth strategy in a sustainable manner and will continue to focus on our net zero ambitions, aiming to be net zero
ourselves by 2030. Sustainability represents the biggest transformation in the banking sector. We are already taking action to reduce our carbon
footprint but recognise that our biggest impact comes from working with customers to help them transition to a net zero economy and become
more sustainable through our green loan offers.
I sincerely thank our colleagues for their fortitude, dedication and commitment to the HSBC brand and in particular for giving our esteemed
customers the best products and services that HSBC has to offer.
Despite the challenging external environment, there are many opportunities ahead for a bank with HSBC’s competitive strengths and
international capabilities and we shall continue to deliver these unique advantages to the Maltese market, as we strive to open up a world of
opportunity.
Signed by Geoffrey Fichte (Chief Executive Officer) on 21 February 2024

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 15

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. He is also a fellow member of the Institute of Chartered Accountants in England and Wales.

Geoffrey Fichte, EXECUTIVE DIRECTOR and CHIEF EXECUTIVE OFFICER Appointed CEO and Executive Director of HSBC Bank Malta p.l.c. in May 2023. He is also Chairman of HSBC Life Assurance (Malta) Ltd and HSBC Global Asset Management (Malta) Limited. Mr Fichte has over 20 years of experience in financial services: banking, insurance, asset management and global strategy across Hong Kong, London, New York and Mexico City. He previously held several senior international positions within the HSBC Group, including President and CEO of HSBC Bank Uruguay, Head of Business Banking, HSBC Mexico; Senior Executive, Corporate Development & Global Strategy, HSBC Group, London; and Senior Manager International (Asia), Hong Kong. He holds a Bachelor of Science in Economics from Wharton School, University of Pennsylvania, Philadelphia, USA. |  |

|  | Michel Cordina, EXECUTIVE DIRECTOR Appointed Executive Director in April 2019. Mr Cordina, formerly Head of Commercial Banking, is presently Head of Business Development and also heads the bank’s Corporate Sustainability arm and is the Deputy Chair of the HSBC Foundation. Mr Cordina is a seasoned banker and has a wealth of experience having started his banking career 42 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 on a number of key projects executed by the bank. 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’).

Alexiei Dingli, NON-EXECUTIVE DIRECTOR Appointed Director of the bank in January 2024. Presently Member of the bank’s Risk Committee. He is a Professor of Artificial Intelligence (AI) at the University of Malta. He has been conducting research and working in the field of AI for more than two decades, assisting different companies to implement AI solutions. His work has been rated World Class by international experts and he has won various local and international awards. He has also published several peer-reviewed publications and formed part of the Malta AI task-force which was setup by the Maltese government, aimed at making Malta one of the top AI countries in the world. He is a B.Sc.IT (honours) graduate, which degree was obtained in 2001, from the University of Malta, has a Ph.D in Artificial Intelligence from the University of Sheffield, UK and an MBA in Technology Management from the Grenoble Business School, France. |  |

|  | 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. Ms Azzopardi is presently the Group Internal Auditor of GO p.l.c., a position she has occupied since November 2000. She also leads GO Green and sits on the Board of Administrators of the Malta ESG Alliance. She has chaired various committees at GO p.l.c., including the Group Fraud Forum and the Gender Equality Committee. She holds a certificate in Business Sustainability Management from the University of Cambridge. 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 - Malta Chapter.

Board of Directors and Company Secretary

16 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Maria Micallef, NON-EXECUTIVE DIRECTOR Appointed as Director in December 2022. Currently, Ms Micallef is the Chairperson of the bank’s Remuneration and Nomination Committee, and Member of the bank’s Audit Committee. She was the Managing Partner at RSM Malta until her retirement in December 2020. Ms Micallef specialised in business advisory services including mergers and acquisitions, corporate finance, valuations and investment appraisals. She is a visiting lecturer at the University of Malta. Currently Ms Micallef is pursuing a Degree in Humanities at the same University. Ms Micallef has a B.A. Hons Accountancy degree and is a Certified Public Accountant. She is a fellow of the Malta Institute of Accountants, a member of the US Institute of Internal Auditors and a member of the Association of Certified Fraud Examiners. Ms Micallef served as President of the Malta Institute of Accountants during the period 2013 to 2015. |  |

|  | Manfred Galdes, NON-EXECUTIVE DIRECTOR Appointed Director of the bank in January 2021. Dr Galdes is the Chairman of the bank’s Risk Committee. He 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 23 years practicing 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.

Terecina Kwong, NON-EXECUTIVE DIRECTOR Appointed as Director in December 2022. Ms Kwong started her career at the HSBC Group via the Hong Kong Management Associate Programme in 2000. She has held several senior positions within HSBC including Global Head of Channels Distribution, Global Commercial Banking Chief Risk and Administration Officer, Global Control Office Chief Operating Officer and Head of Centre of Excellence, Group Head of Operational Management and Chief Operating Office at HSBC China. She is currently HSBC Global Chief Operating Officer for retail banking, and a Non-Executive Director of HSBC Armenia. In 1997 she obtained a Bachelor of Arts Degree (Economics) from the University of British Columbia, Vancouver, Canada. In 1999 she graduated with Master of Business Administration from the Chinese University of Hong Kong. She also graduated in 2007 with a Bachelor of Law from the University of London and is a Fellow CPA, CPA Australia. |  |

|  | Paula Mamo, COMPANY SECRETARY Company Secretary of HSBC Bank Malta p.l.c. since May 2022. Dr Mamo joined the bank in February 2018 as Deputy Company Secretary supporting the Company Secretary. She was appointed Company Secretary for the two subsidiary companies of the bank, HSBC Life Assurance (Malta) Ltd and HSBC Global Asset Management (Malta) Limited in May 2018. Prior to joining HSBC, Dr Mamo progressed through a number of roles primarily within legal, regulatory compliance and financial crime compliance, with other licensed financial institutions. She graduated as Doctor of Laws from the University of Malta in 2010.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 17

Executive Committee and Head of Internal Audit
|  | Geoffrey Fichte, EXECUTIVE DIRECTOR AND CHIEF EXECUTIVE OFFICER Appointed CEO and Executive Director of HSBC Bank Malta p.l.c. in May 2023. He is also Chairman of HSBC Life Assurance (Malta) Ltd and HSBC Global Asset Management (Malta) Limited. Mr Fichte has over 20 years of experience in financial services: banking, insurance, asset management and global strategy across Hong Kong, London, New York and Mexico City. He previously held several senior international positions within the HSBC Group, including President and CEO of HSBC Bank Uruguay, Head of Business Banking, HSBC Mexico; Senior Executive, Corporate Development & Global Strategy, HSBC Group, London; and Senior Manager International (Asia), Hong Kong. He holds a Bachelor of Science in Economics from Wharton School, University of Pennsylvania, Philadelphia, USA.

Svetlana Maslova, CHIEF OPERATING OFFICER Ms Maslova joined HSBC Bank Malta p.l.c. in July 2023. She has 15 years’ experience with the Group and has worked in several Group entities across Europe and Asia. Svetlana has held a number of key roles in Retail and Wealth Management and Digital Business Services, and previously worked in Malta for 8 years. Svetlana holds a Bachelor’s Degree in Philology and English Language. She also holds certificates for Financial Advice and Management Accounting. Through HSBC, Svetlana is also an accredited career coach. |  |

|  | 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.

Muriel Rutland, Designate HEAD OF WEALTH AND PERSONAL BANKING Ms Rutland’s appointment as Head of Wealth and Personal Banking will be effective upon receipt of regulatory approval. During her 22-year career with HSBC Malta, she has built extensive experience in the WPB business through various senior management positions including CEO of HSBC Life Insurance (Malta) Limited, WPB Chief Operating Officer and Managing Director of HSBC Global Asset Management (Malta) Limited. She graduated in Bachelor of Commerce Honours in Banking & Finance from the University of Malta in 2001. |  |

|  | 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 and also heads the bank’s Corporate Sustainability arm and is the Deputy Chair of the HSBC Foundation. Mr Cordina is a seasoned banker and has a wealth of experience having started his banking career 42 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 and Head of Internal Audit

18 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

|  | 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. Prior to his role as Head of Global Markets, Mr Apap headed Markets Treasury, managing cash, liquidity, funding and the structural interest rate risk for the bank.

David Perotti, HEAD OF HUMAN RESOURCES Mr Perotti was appointed Head of Human Resources in August 2023. He has 42 years’ experience in banking, 25 of which within virtually all areas in HR. During the past few years, David has headed Employee & Industrial Relations for HBMT, working closely with our union stakeholders. He is an active member of HSBC’s Global Employee Relations (ER) Forum and has supported Regional ER on a number of important projects. |  |

|  | Joyce Grech, HEAD OF COMMERCIAL BANKING Ms Grech has had a 27-year career with HSBC, during which she has occupied a number of roles, primarily in Malta. She has been heading Commercial Banking for four years, during which she has embedded various changes, reshaping the team to ensure there is a focus on meeting customer needs. She has been a member of EXCO for 10 years, having served as the bank’s Chief Risk Officer for 6 years. In previous roles, she gained experience in various areas of Risk, most notably as Deputy Head of Credit. She also worked in the Personal Banking area, leading Customer Value Management for a number of years. She had also worked in the Trade Finance and Commercial Banking areas. A strong supporter of diversity and inclusion in its various forms, she is the chairperson of the bank’s Diversity and Inclusion Committee. She is particularly involved in gender diversity and aims to support female colleagues through mentoring and other initiatives and activities.

Steven Beddow, CHIEF RISK OFFICER Mr Beddow was appointed Chief Risk Officer in November 2022. Mr Beddow holds a Bachelor and Master’s Degree from the University of Oxford in Modern Languages. He has over 20 years of experience within the HSBC Group and has worked in a number of locations across Europe, Asia, the Middle East and the Americas. Mr Beddow has previously held a number of banking related Director positions, served on different country level executive committees, led transformation work, and co-sponsored a country level diversity and inclusion committee. He is passionate about staff development and mentoring. |  |

|  | 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. Dr Sammut 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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 19

Mandy Falzon, CHIEF COMPLIANCE OFFICER Appointed as Chief Compliance Officer in March 2021, leading the Regulatory Compliance and Financial Crime Compliance teams at HSBC Bank Malta p.l.c. She graduated as a Doctor of Laws from the University of Malta in 2005, and has 17 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).

Paula Mamo, COMPANY SECRETARY Company Secretary of HSBC Bank Malta p.l.c. since May 2022. Dr Mamo joined the bank in February 2018 as Deputy Company Secretary supporting the Company Secretary. She was appointed Company Secretary for the two subsidiary companies of the bank, HSBC Life Assurance (Malta) Ltd and HSBC Global Asset Management (Malta) Limited in May 2018. Prior to joining HSBC, Dr Mamo progressed through a number of roles primarily within legal, regulatory compliance and financial crime compliance, with other licensed financial institutions. She graduated as Doctor of Laws from the University of Malta in 2010. |  |

|  | Morgan Carabott, HEAD OF INTERNAL AUDIT In September 2021, the Bank announced the appointment of Morgan Carabott as Head of Internal Audit. 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 Fellow of the Malta Institute of Accountants and a member of the Information Systems Audit and Control Association (ISACA) and Association of Certified Anti-Money Laundering Specialists (ACAMS). She has strong auditing and risk management skills, sound industry and regulatory knowledge coupled with extensive experience in leading and managing numerous audits across different sectors.

Executive Committee and Head of Internal Audit

20 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 is also licensed by the Malta Financial Services
Authority to carry out investment services 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 2023
the bank had 12 branches in Malta, one of which is located in Gozo.
The local group comprised the following subsidiaries at
31 December 2023: 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 through HSBC Bank Malta p.l.c. which is enrolled as a tied
insurance intermediary for HSBC Life Assurance (Malta) Ltd under the
Insurance Distribution Act (chapter 487, Laws of Malta).
HSBC Global Asset Management (Malta) Limited is regulated by the
Malta Financial Services Authority. It has an Investment Services
Licence and is principally engaged in the asset management of
Collective Investment Schemes and Discretionary Portfolio Mandates.
Business and strategy
HSBC Malta is part of HSBC Group, which has an unrivalled global
position which serves customers worldwide from offices in 62
countries and territories in its geographical regions: Europe, Asia,
North America, Latin America, and Middle East and North Africa. With
assets of US$ 3 trillion at 31 December 2023, HSBC is one of the
world’s largest banking and financial services organisations.
Approximately 42 million customers bank with the HSBC Group and
the Group employs around 221,000 full-time equivalent staff. The
Group has around 172,000 shareholders. HSBC Malta is Malta’s
leading international bank. No international bank has our presence in
Malta and no domestic bank has our international reach.
HSBC Group’s purpose statement is: Opening up a world of
opportunity. HSBC is here to provide 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. 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. 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 local 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 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.

Group Strategy | Our strategy supports our ambition of being the preferred international financial partner for our clients, centred around four key areas.
Focus | Digitise | Energise | Transition
– Maintain leadership in the scale markets. – Double-down on international connectivity – Diversify our revenue – Maintain cost discipline and reshape our portfolio. | – Deliver seamless customer experiences. – Ensure resilience and security. – Embrace disruptive technologies and partners with innovators. – Automate and simplify at scale. | – Inspire leaders to drive performance and delivery. – Unlock our edge to enable success. – Deliver a unique and exceptional colleague experience. – Prepare our workforce for the future. | – Support our customers. – Embed net zero into the way we operate. – partner for systemic change. – Become net zero in our own operations and supply chain by 2030,and our financed emissions by 2050.

In 2023, the bank continued to enhance its premium propositions for
retail customers, as well as launched new Insurance and Investment
products, such as the ‘Key Five Critical Illness’ providing cover against
five of the most common critical illnesses in the Maltese population,
and the ‘Fixed Maturity Portfolio fund’, providing customers exposure
to euro corporate bonds in a diversified fund with income generation.
We have continued to embed our Environmental, Social and
Governance strategy through the acceleration of Retail sustainable
solutions by rolling out PVC cards made up of 100% recycled
material, the migration of more customer documentation from paper
to digital, as well as through the strong growth in digital service
adoption. Additionally, investments into sustainable funds continued
to grow through the range of Socially Responsible Investments held
and through the implementation of a new Wealth advisory solution,
ensuring more granular sustainability preferences are taken into
consideration during the provision of investment advice.
Supporting the transition to net zero and engaging with our corporate
clients to help them diversify and decarbonise is a key priority for us.
In 2023, we expanded our portfolio of Green and Sustainability Linked
lending products and now offer a comprehensive suite of products, all
of which meet industry standards and practice. Investment by
businesses in order to reduce their emissions needs to gather
momentum in the short term in order to enable global goals to be
reached and we will therefore continue with our focus in this area in
the coming year.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 21

During the year we continued improving our digital cash management
services. The main development was the launch of BBX, a simplified,
user friendly interface of the HSBCnet landing page aimed at Small
and Medium Sized businesses (SMEs). BBX will give more
customers access to the various functionalities of our HSBCnet,
allowing them to save time when making payments and processing
other transactions and to gain access to the information they need
instantly.
Looking ahead to 2024, we seek to continue embedding our Climate
Change efforts, 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
2023.
Conduct
Within HSBC, best practice consists of taking actions and making
decisions that are fair for its customers and do not disrupt the proper
and transparent operation of financial markets. These principles are
essential to ensure long-term success and provide the best service to
our customers. To achieve this, the Bank has a clear framework and
governance principles covering its culture and behaviour, the design
of products and services, training and remuneration of employees,
interactions with customers and internal communication.
The Conduct framework is the central reference to guide colleagues
to understand the consequences of good or poor decisions for
customers and other stakeholders.
The renewed Conduct Approach has been aligned to one of the
refreshed values ‘We Take Responsibility’, and now structured around
five outcomes to be achieved for customers and markets in a
simplest and understandable approach. In 2023, all lines of
businesses and functions have conducted a conduct self-assessment
ensuring to be well-aligned with the Purpose Led Conduct Approach.
Employees received a Group mandatory conduct training launched
during the last quarter of 2023.
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.
Results for 2023
HSBC Bank Malta p.l.c. (‘the bank’) and its subsidiaries (collectively
referred to as the local group), reported a profit before tax of €133.9m
for the year under review. The local group’s profit attributable to
shareholders was €86.8m.
The Directors have proposed a gross final dividend of 9.00 cent per
ordinary share. The final dividend will be payable to shareholders on
the bank’s register as at 19 March 2024.
Further information about the results of the local group is provided in
the Income Statements and the Statements of Comprehensive
Income on pag es 69 and 70 r espectively.
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.

| 2023 | 2022
Profit before tax (reported) (€m) | 133.9 | 55.6
Profit before tax (adjusted) (€m) | 133.9 | 57.1
Cost efficiency ratio (reported) (%) | 44.2 | 68.4
Cost efficiency ratio (adjusted) (%) | 44.2 | 67.4
Post-tax return on equity (reported) (%) | 17.1 | 7.7
Post-tax return on equity (adjusted) (%) | 17.1 | 7.9
Common Equity Tier 1 ratio (%) | 20.6 | 18.5

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 revenue growth across all three global businesses,
supported by a higher interest rate environment . 2022 includes a
one-off restructuring provision to deliver future cost savings.
Outcome (adjusted): The adjusted profit before tax for 2023 is the
same as reported since there were no significant items. It is higher
than 2022 due to factors mentioned in the Outcome (reported). In
2022, adjusted costs related to a one-off restructuring provision as
mentioned above.
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 decreased from 67% in
2022 to 44% in 2023. Adjusted costs increased by 4.3% year on year.
This increase is mainly due to increase in staff costs as the bank
continued to invest in people.
Post-tax return on equity (reported/adjusted): is measured as
post-tax profit divided by average equity.
Outcome (reported): The reported return on equity is significantly
higher than that reported last year in view of the increase in profits.
Outcome (adjusted): The adjusted return on equity excludes the
notable items and is significantly better than 2022.
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
2022 due to increased profits and higher revaluation reserves partially
offset by higher capital deductions for non-performing loans as capital
requirements continue to be gradually implemented.
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
Our people and the community we serve remain at the heart of our
business. Employee engagement and growth are key drivers for the
provision of excellent customer service. We therefore provide our
people with opportunities to realise their career aspirations and the
knowledge and tools to safeguard their well-being.
Report of the Directors

22 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Diversity and Inclusion
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, taking
responsibility and getting 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.
Our Diversity and Inclusion Committee continues to ensure that we
drive our Diversity and Inclusion policies and principles through all
activities including recruitment processes, learning programmes and
various initiatives across the bank and Malta. In 2023, 50% of our
senior leadership roles were held by women. We delivered regular
career sessions to support employee development and career
progression. This year HSBC Bank Malta p.l.c. was once again a proud
sponsor of Pride, where again we showed our commitment to
promoting and supporting the LGBTI+ community.
Well-being
Throughout the year we organised various sessions for our
employees focusing on topics of interest including mental, physical
and financial well-being. Flexible (including remote) working have
been engrained in our work practice thereby facilitating a healthy
work/life balance for our people. The employee “wellbeing
allowance” through which employees can claim reimbursement for
expenditure related to wellbeing initiatives was increased significantly
and the breath of eligible initiatives widened.
Learning and Development
We continued to capitalise on our employee platforms and tools to
facilitate employee personal development and the enhancing of skills
and abilities. This was achieved through various virtual-led programs
including career progression sessions, HSBC’s Degreed platform, and
future skills training.
Opportunities for career development continued throughout 2023
with employees applying for job opportunities across the bank and its
subsidiaries. Many were promoted in the process. Succession
planning for key roles is also ongoing. Three of our senior managers
were selected to join the 2023 intake of HSBC’s prestigious Inspire
Programme tailored for individuals recognised as having the potential
to become senior leaders within HSBC Continental Europe.
We submitted 13 nominations for the HBCE Energy Awards and won
an award for International Collaboration. A great achievement for our
people to be recognised alongside HBCE colleagues.
Attraction and retention of quality
employees
The attraction and retention of talent was high on our agenda
throughout 2023. Our Internship proposition was again successfully
implemented throughout 2023 in collaboration with the University of
Malta and other educational institutions to recruit students and
provide them with a rich working experience. This year we again
welcomed back several students who returned to HSBC as full time
employees after completing their studies. We strongly believe in the
importance of engaging with our future talent, thereby providing
future pipeline for the business. Flexible (including remote) working
have been engrained in our work practice thereby facilitating a healthy
work/life balance for our people.
Listening to our People
Shortly following his appointment in May, the CEO hosted a series of
face to face discussions with all senior managers in the presence of
HR, articulating strategy and listening to feedback and any concerns
keeping main focus on “our people”. These meetings established a
close connection across senior management and a commitment to
maintain open two-way communication which is so important for our
people.
We continue to run a Snapshot Survey every year to have a better
understanding about our employees’ needs. During 2023 , the
Snapshot response rate rose to 71% from 46% in the previous year.
All key indices (including overall employee engagement) registered an
improvement over the previous year. A clear indication that our
people focused strategy is yielding results. We will continue to focus
on further improvements for 2024.
We promote a speak up culture where employees have various tools
and channels they can use to speak up. In the 2023 employee survey,
72 % of colleagues stated that they are confident to speak up when
they see behaviours which they consider are wrong. Furthermore
76 % of our employees stated having trust in line management. Our
conduct framework and policies ensure that we deliver fair outcomes
for our people to foster a healthy working environment.
Industrial Relations
Collective Agreement negotiations with the Malta Union of Bank
Employees (MUBE) for the new Collective Agreement (progressed
throughout the year. Agreement in principle was reached in
December. Both HSBC and MUBE worked closely to secure a fair and
balanced agreement incorporating enhanced pay and benefits for the
3 year period 2024-2026. HSBC and MUBE are also collaborating on a
salary benchmarking exercise to ensure that pay levels across the
bank compare favourably against the external market characterised by
a strong demand for employees in financial services.
Guiding Principles
The bank is committed to respecting 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.
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 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, customers, buildings, assets
and information.
The local group remains committed to maintaining its readiness for
emerging and foreseeable risks in ensuring health and safety
compliance.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 23

Sustainability
Statement on Non-Financial
Reporting
HSBC Bank Malta p.l.c.’s business model
Activities and strategy
The business model for HSBC Bank Malta p.l.c., showing its scope,
main resources, main business areas and activities, its strategy and
its prospects is set out in the presentation of activity and strategy on
page 21.
Our approach to Sustainability
Our approach to Environmental, Social and Governance (ESG)
The local group as part of HSBC Group is on a journey to incorporate
environmental, social and governance principles throughout the
organisation, and is taking steps to embed sustainability into HSBC
purpose and corporate strategy.
HSBC is guided by its purpose: to open up a world of opportunity for
colleagues, customers and communities. HSBC purpose is
underpinned by its values: we value difference; we succeed together;
we take responsibility; and we get it done. HSBC purpose and values
help the bank to deliver its strategy and unlock long-term value for its
stakeholders. HSBC approach to ESG is shaped by its purpose and
values and a desire to create sustainable long-term value for its
stakeholders. As an international bank with significant breadth and
scale, HSBC understands that economies, societies, supply chains
and people’s lives are interconnected. HSBC recognises that an
important role can be played in helping to tackle ESG challenges.
Bank efforts are focused on three areas: the transition to net zero,
building inclusion and resilience and acting responsibly. The local
group is fully committed to the course of action adopted by Group and
presented in its strategy report - https://www.hsbc.com/investors/
results-and-announcements
The local group‘s sustainability approach, is aligned with Group‘s
approach which is described in the non-financial information
presented in the Environmental, Social and Governance chapter which
forms part of the Group Annual report and Accounts available on the
Group website: https://www.hsbc.com/who-we-are/esg-and-
responsible-business
Our HSBC Malta 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.
In 2023 we supported a number of Future Skills Projects. The launch
of the Human Capital Research Project together with the Minister for
Education and the Malta Chamber of Commerce will assist to review
the local curriculum. The HSBC Malta Foundation is supporting the
Human Capital Research Project through a donation of €135K. The
three-year long research project, is focusing to identify current and
future skills in financial services and banking, information technology,
communication, professional, scientific and technical services. Once
concluded, the project will contribute to Malta’s ongoing
competitiveness in the global economy by delivering a series of
evidence-based policy recommendations.
We continued to support the Prince’s Trust International Achieve
Programme which has surpassed our targeted reach this year,
supporting 299 newly enrolled students.
The HSBC Malta Foundation continues to support- The Maximising
energy efficiency through building renovation: HSBC Case Study
project with a donation of €120K. Through this foundational study,
HSBC is paving the way for more advanced research and
policymaking and is leading the transition towards more sustainable
Maltese buildings. This project sets a precedent locally, where data
on utility usage and building efficiency has been scarce compared to
other European countries. Featuring its offices in Qormi as a pivotal
case study, HSBC is taking a leadership role in the transition to high
energy efficiency and low-carbon office buildings in Malta.
Additionally HSBC Bank Malta p.l.c. is one of the 13 founding
members of the Malta ESG Alliance. The Alliance has the aim of
acting as a platform for Maltese businesses to collaborate and work
together in order to lead and drive national ESG goals and ultimately
act as catalysts while leading by example.
During the year, the bank continued to support 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 two climate
action network teams in 2023 thanks to the commitment of our
employees ranging from environmental to future skills topics. The
CAN teams drive various internal learning initiatives to increase the
capabilities of our own employees and also within the community. All
these initiatives were led ably by our people who use a central
platform where they share their achievements and successes of their
projects.
Wholesale banking activity
The potential environmental and social impacts caused by customers
conducting business in any of the sectors concerned by HSBC Bank
Malta p.l.c sustainability risk policies are assessed by account
managers from Commercial Banking and by HSBC's designated
Sustainability Risk Managers from the Credit Department, whether for
risky project finance or lending transactions. Since 2020, regional
Reputational Risk Managers also have had responsibility for
supervising management of sustainability risks.
The sectors identified from the HSBC Group as priorities, and for
which an internal policy has been developed, are forestry and its
derivative products, agricultural commodities, mining and metals,
chemicals, energy, defence, UNESCO world heritage sites and
Ramsar wetlands. Sustainability risk policies set up by the local group
are regularly reviewed to improve the bank's risk management.
More information on HSBC sustainability risk policies https://
www.hsbc.com/who-we-are/esg-and-responsible-business/managing-
risk/sustainability-risk
Energy policy
The Energy policy, refreshed in January 2024, covers the Oil & Gas
and Power & Utilities sectors as well as hydrogen activities. The
Energy policy seeks to balance three related objectives:
Drive down global greenhouse gas emissions; enable an orderly
transition that builds resilience in the long term; and support a just
and affordable transition.
HSBC reviews the Energy policy annually to ensure it remains aligned
with its net zero by 2050 commitment and strategic objectives. The
annual review includes considerations of changes in relevant external
factors.
HSBC Bank Malta p.l.c. forms part of HSBC Continental Europe and
adopts the same policies and practices insofar as they are applicable
to its business model. There is no Global Banking activity in Malta, all
wholesale banking activity is carried out by Commercial Banking.
For more details, visit HSBC's website:
https://www.hsbc.com/who-we-are/esg-and-responsible-business/
managing-risk/sustainability-risk
Thermal coal phase-out policy
HSBC Group is committed to phasing out the financing of coal-fired
power and thermal coal mining in EU and OECD markets by 2030,
and globally by 2040. The thermal coal phase-out policy is reviewed
annually to ensure it remains aligned with HSBC Bank Malta p.l.c.'s
commitments and takes into consideration any changes in external
factors.
For more details, visit HSBC's website:https://www.hsbc.com/who-
we-are/esg-and-responsible-business/managing-risk/sustainability-risk
Report of the Directors

24 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Exposure to thermal coal
HSBC Group intends to reduce thermal coal financing drawn balance
exposure by at least 25 per cent by 2025 and is aiming for 50 per
cent reduction by 2030.
Its approach to screening clients and transactions is designed to
capture and report its exposure to thermal coal, in alignment with its
thermal coal policy. HSBC Bank Malta p.l.c. is in scope of this
reporting but it has no exposure to this sector.
Measuring our financed emissions
HSBC Group announced its ambition to become a net zero bank in
October 2020, including an aim to align its financed emissions to net
zero by 2050 or sooner. It plans to publish initial financed emissions
targets for 2030, and in five-year increments thereafter. It remains
committed to working with its customers to support their journey
towards a net zero future, and deploying capital towards
decarbonisation solutions for the most emissions-intensive sectors.
For further details on our approach to financed.emissions, see https://
www.hsbc.com/who-we-are/our-climate-strategy/tracking-the-
emissions-we-finance#:~:text=Our%20net%20zero%20ambition
%20means,zero%20by%202050%20or%20sooner.
Evolving approach
HSBC Bank Malta p.l.c. as part of HSBC Group believes
methodologies for calculating financed emissions and setting targets
should be transparent and comparable, and should provide science-
based insights that focus engagement efforts, inform capital
allocation and develop solutions that are both timely and impactful.
The Group continues to engage with regulators, standard setters and
industry bodies to shape its approach to measuring financed
emissions and managing portfolio alignment to net zero. It also works
with data providers and its clients to help it gather data from the real
economy to improve its analysis. Scenarios used in the analysis are
modelled upon assumptions of the available carbon budget and
actions that need to be taken to limit the long-term increase in
average global temperatures to 1.5°C. HSBC expects scenarios will
continue to evolve based on assumptions including technology
development and adoption, shifts in the energy mix, behavioural
changes, and implementation of policy levers. Scenario updates will
also reflect progress in the real economy and improvements in the
usability, accuracy and granularity of pathways.
HSBC plans to refine its own analysis of financed emissions as
industry guidance on scenarios, and data and methodologies more
broadly, evolve in the years ahead.
For further details of the Group’s approach and methodology, see the
HSBC net zero Aligned Finance Approach Update and Financed
Emissions Methodology available on the Group website at https://
www.hsbc.com/who-we-are/esg-and-responsible-business.
Embedding net zero transition into the wholesale business
HSBC Bank Malta p.l.c. as part of HSBC Group is working with
customers to capture holistic information on their exposure to the
transition to net zero emissions, and the risks and opportunities in five
key areas (emissions, reduction targets, plans, transition risks,
physical risks). Higher risk customers are assessed through a
Transition Engagement Questionnaire that feeds into a new Climate
Score together with external data sources, and supports commercial
decision-making and credit assessments, pricing and capital
allocation. Lower risk customers are given a proxy score and Financial
Institutions Group ('FIG') / Intermediate Capital Group ('ICG')
customers a composite score. The score is used to support
commercial decision-making and provides a quantitative value that
helps embed climate risk into credit assessments.
More information in "HSBC Bank Malta p.l.c. - Pillar 3 Report 2023"
Building employees' expertise in sustainable finance
Commercial Banking has maintained the region-wide Sustainable
Finance Country Representative Network. These representatives
obtain access to information, training and external certification, and
specific events. In turn, they are expected to drive the strategy on the
ground and act as local experts within their countries and teams. In
2023, Commercial Banking also pursued dedicated training pathways
with an external partner: one on European Taxonomy (5 modules) and
one on Energy transition and sustainable finance (12 modules). For all
employees, Commercial Banking also introduced additional support
materials, an interactive instructor-led workshop, and a 'Commercial
Banking Sustainability Leader Certification' scheme to further support
and recognise employee upskilling.
Insurance activity
HSBC Life Assurance (Malta) Ltd. (“HSBC Life”) adheres to the HSBC
Insurance Sustainability Policy which during H2 2023 this was turned
into procedures set out at the level of HSBC Group Insurance. These
procedures are reflected into HSBC Life’s Investment Policy, where
these are geared towards ensuring that sustainability risks are
integrated into the investment decision-making process.
In so far as direct investments are being made by HSBC Life and/or
HSBC Global Asset Management (Malta) Ltd (“HSBC Asset
Management”) for and on behalf of HSBC Life pursuant to an
investment management agreement entered into to this effect
(thereby excluding mutual funds, or passive strategies replicating an
index, etc.), HSBC Life adopts and implements negative screening
practices which are intended to restrict or prohibit investments in
selected securities where these do not meet the sustainability
standards established in the Sustainability Procedures. These
restrictions / prohibitions in turn align with the HSBC Group’s stand-
alone Sustainability Risk Policies which relate to: Agricultural
Commodities, Chemicals Industry, Energy, Forestry, Mining and
Metals, Thermal Coal Phase Out, World Heritage Sites and Ramsar
Wetlands, and Defence Equipment Policies.
In addition, HSBC Life’s appointed asset manager, HSBC Asset
Management abides by the Responsible Investment Policy which
outlines its approach to responsible investing. Also, HSBC Asset
Management abides to the Engagement Policy, which outlines the
approach to monitor and engage with issuers, and applicable voting
guidelines / restrictions implemented.
As for those instances where HSBC Life is directly investing in
collective investment schemes (which are in turn administered by
asset managers exercising exclusive discretion to invest in other
underlying securities and/or funds), HSBC Life seeks to primarily, but
not necessarily exclusively, engage and work with those asset
managers who are signatories to the Principles for Responsible
Investment (“PRI”) and/or others who have sustainability integration
and investment stewardship practices in place. These asset managers
need to be able to demonstrate, to Group Management Solution’s
satisfaction, the adoption and implementation of sustainability
principles and standards in the course of their respective investment
decision-making processes.
HSBC Life has taken steps to comply with the Sustainable Finance
Disclosure Regulation (SFDR), by updating the SFDR Entity disclosure
and published the Principal Adverse Impact (PAI) statement. The PAI
statement provides detailed insights into our approach, metrics,
impacts, explanations, and any planned actions for each adverse
sustainability indicator identified. This comprehensive disclosure
covers a wide range of environmental, social, and governance risks,
with particular emphasis on climate and environment-related
concerns, employee well-being, human rights, and anti-corruption
measures.
Integrating sustainability criteria into compensation
As in the preceding year, the programs ranged from raising
awareness, to developing technical skills for front line and specialist
roles within our control functions and business lines. The programs
also focused on building a network for participants to promote intra
Group collaboration in transforming HSBC into a net zero bank.
Employees were also encouraged to personally participate in any one
sustainability initiative to effectively connect theory with hands-on
experience. For the second year running, members of the Climate
Committee delivered several webinars in relation to Sustainability as
well as direct engagement in HSBC Continental Europe led
Sustainability initiatives. Furthermore, a few of our colleagues studied
for relative qualifications including the Award in Environmental, Social
and Corporate Governance (ESG) (Institute of Financial Services –
Malta) and the Chartered Banker Certificate in Green & Sustainable
Finance.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 25

Leadership and Soft Skills training were also delivered throughout
2023 in addition to technical training related to specific roles. In
addition, the bank also continues to support the upskill of its people
through external education.
In a rapidly changing banking landscape, HSBC Bank Malta p.l.c. aims
to respond to the shift in employment patterns by attracting,
recruiting, and integrating the best talent. To support its development
and the creation of a stronger workforce, the bank hires employees
from a variety of backgrounds to contribute to the bank’s various
business lines. Attrition rate for HSBC Bank Malta p.l.c. has stabilised
at 6.5% throughout 2023 which is within the target attrition rate of
7% for HSBC Continental Europe. In this context, strong succession
plans are reviewed on an annual basis for senior management/critical
roles and talent future leaders.
Job opportunities are initially advertised internally, in line with the
Collective Agreement with the recognised union, enabling employees
to develop their career across HSBC Bank Malta p.l.c., its subsidiaries
or group.
In 2023 we continued to offer internships in collaboration with
MCAST/University/JAYE. These programmes encourage students to
discover various roles within our various business areas while
acquiring cutting-edge skills.
Flexible working culture across HSBC Bank Malta p.l.c. intends to
continue taking broader initiatives to foster a hybrid working culture
across all the countries in which it operates. The goal for the bank is
to cultivate flexibility, collaboration, learning and staff wellbeing in on-
site and remote workplaces, while ensuring that the social and
collaborative bond within the team is preserved and developed.
As one of the leading employers, our main aim is to build an HR policy
that helps to develop the employability of staff members, while
helping them to achieve their full potential for the bank. In an
environment where potential expresses itself in many ways, HSBC
Bank Malta p.l.c. is convinced that managing difference and
integrating it into the organisation can truly add value. It places a
particular emphasis on diversity in all its various forms, particularly
regarding gender, age, skin colour, social origin, religion, disability,
sexual orientation, appearance, and opinions. All employees should be
able to be themselves, in an organisation that values different profiles
and opinions. Making this diversity a real strength is a major priority
for the local group.
HSBC Bank Malta p.l.c. believes that diversity makes our business
stronger. The challenge is to foster and make the most of those
differences with the aim of creating internal cohesion, increasing
motivation and engagement, and making employees proud to be part
of the Group.
Retail banking activity
Retail sustainable solutions have been accelerated by rolling out PVC
cards made up of 100% recycled material, issuing them to customers
needing new or replacement cards. The recycled PVC plastic card
action is expected to reduce CO2 emissions and save tonnes of
plastic waste per year as part of our net zero strategy.
In addition, investment in our digital platforms supported strong
growth in digital service adoption with 95% of retail transactions
executed through online banking channels. We continued to deliver
on our commitment to migrate more customer documentation from
paper to digital with over 20,000 customers migrated from paper to
digital statements.
Contribution from the Retail banking to sustainable financing
HSBC Bank Malta p.l.c. has been active in sustainable finance for
almost 20 years and offers attractive rates on Energy Efficiency
Loans. In 2023, the Retail Credit Risk function has continued to
consider, incorporate and assess climate risk for the Retail real estate
portfolio in consideration of the European Central Bank’s: Guide on
climate related and environmental risks. For transition risk, the
property energy performance details were integrated into the
information recording process and now allow for monitoring of the
Energy Performance Certificate Rating distribution within new
lending.
For the physical climate risk impact, flooding risk-based metrics were
incorporated into the regular internal reporting and the policy was
enhanced to take into consideration this potential risk.
The local group also offers a range of Socially Responsible
Investments (SRI). The multi asset funds in the HSBC Responsible
Investment Fund (HSBC RIF) range which are offered locally are
house in a single French registered SICAV. They cater for various risk
profiles and are all certified with the French SRI label.
This diversified SRI range combines an SRI investment process with
multi-asset investment expertise. The best-in-class SRI approach is
led by managers and analysts who use proprietary tools and a
comprehensive Global ESG research platform to ensure the
consistency in investment decisions.
Through our Investments and Wealth Solutions team, HSBC Bank
Malta p.l.c. implemented a new financial advisory solution to ensure
more granular sustainability preferences are taken into consideration
during the provision of investment advice. The Strategic Financial
Planning tool, which is used during the provision of financial advice
has been enabled to automatically filter ESG products that meet
customer sustainability preferences. HSBC Bank Malta p.l.c. is
actively campaigning through letters, emails, social media etc., to
encourage customers to undertake a financial planning review and
provide us with their sustainability preferences. Investments into
sustainable funds continued to grow, and as of 31 December 2023,
Assets Under Management in Sustainable Funds have exceeded €34
million.
In addition, HSBC Bank Malta p.l.c. offers funds, such as the HSBC
GIF Global Lower Carbon and Equity Funds, with the aim of reducing
exposure to intensive carbon activities and reducing exposure to
intensive carbon activities and reducing the carbon footprint. The
investment process enables the assessment of a portfolio of
companies, the identification and classification of the most attractive
firms in the investment world.
HSBC Asset Management’s approach to ESG
HSBC Global Asset Management (Malta) Limited as part of HSBC
Global Asset Management continues to strengthen its sustainability
proposition, globally driven by the Sustainability Office and
Responsible Investment teams across both traditional assets and
Alternatives.
The Sustainability Office, established in 2021, is responsible for the
delivery of HSBC Asset Management’s global sustainability strategy
including voluntary commitments, policy, implementation, assurance
and the business-wide transition to sustainable investing. The team
also drives the people-focused initiatives, including Diversity, Equity
and Inclusion (DE&I), as part of its ambition to embed a human
sustainability culture.
Within the investments function, the Responsible Investment team
oversees the integration of ESG risks and opportunities into the
investment process (as applicable depending on the product), the
climate investment strategy, as well as the firm’s Stewardship and
Engagement activity for investment management teams globally. It
also leads the development of new ESG, climate change and thematic
products and solutions, working closely with the Sustainability Office
and the investment platform. An addition to its investment capabilities
is the creation of the Sustainable Investment Solutions Lab (SISL).
SISL will co-ordinate and lead the development of sustainability and
climate metrics and tools supporting solutions for clients and
products, and will become operational at the start of 2024. The
Alternatives Responsible Investment team is responsible for ESG
integration across non-traditional asset classes and works closely with
the above three teams to ensure alignment and cross-fertilisation of
best practices.
In addition to ESG-focused governance meetings for traditional asset
classes, sustainability is included in the agenda of global and local
forums such as Executive Committees, Risk Management Meetings
and New Business Committees.
Policies and engagement
In November 2023, HSBC Asset Management published its own
energy policy. The policy aligns with its commitment under the Net
Zero Asset Managers initiative to support investing aligned with net
zero greenhouse gas emissions by 2050 or sooner. Under the policy,
Report of the Directors

26 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

HSBC Asset Management will engage with and assess the transition
plans of oil and gas, and power and utilities companies held in its
portfolios, amongst those responsible for around 70 per cent of
greenhouse gas emissions related to its holdings. Its Alternatives
business will not undertake new direct investments in projects
associated with energy activities that are identified as excluded from
new finance or advisory services under the HSBC Group energy
policy. For its range of active fundamental sustainable named funds,
HSBC Asset Management will exclude listed issuers whose overall
operations are largely in unconventional oil and gas activities, subject
to data availability, due diligence and with the level and scope of
exclusions to be set out in fund prospectuses. Data relating to
unconventional oil and gas activities is available for arctic oil and gas,
oil sands and shale oil. HSBC Asset Management completed an
annual review of its thermal coal policy, publishing an updated policy
which included additional metallurgical coal requirements.
HSBC Global Asset Management (Malta) Limited adopts the global
policies and standards for investee companies on its stewardship
priority list, engaging to better understand and support their practices
in terms of climate reporting, the management of risks and
opportunities related to climate change.
HSBC Asset Management's engagement approach applies to both
equity and fixed income issuer companies. Prioritisation of
engagement activity is made on the basis of scale of holdings,
importance of the issues concerned, and the overall exposure to ESG
issues, as set out in HSBC Asset Management's Global Stewardship
plan.
∗ For the Global Stewardship Plan, see https://
www.assetmanagement.hsbc.co.uk/en/institutional-investor/about-us/
responsible-investing/-/media/files/attachments/uk/policies/
stewardship-plan-uk.pdf
HSBC Asset Management’s sustainable investment offerings
HSBC Asset Management is committed to its strategic focus on
climate products and solutions and on its net zero commitment.
HSBC Asset Management is committed to further developing its
sustainable product range across asset classes and strategies as well
as enhancing its existing product set for ESG criteria where it is in the
investor’s interests to do so.
Disclosures
HSBC Asset Management as a Group was an early Principles for
Responsible Investment ('PRI') signatory in 2006 and thus report
annually on responsible investment activities and how PRI principles
are covered as part of the HSBC Asset Management investment
processes. This has enhanced the firm's management and
understanding of material ESG issues and has provided transparency
for clients. As required under the Net Zero Asset Managers ('NZAM')
initiative commitment, HSBC Asset Management reported an update
through the PRI annual submission.
HSBC Asset Management through its global Sustainable Office seeks
appropriate disclosure by the entities in which its portfolio invest. For
example, HSBC Asset Management has engaged with relevant
companies on its priority list on climate disclosure since 2020 and
encouraged them to disclose in line with the recommendations of the
Task Force on Climate-related Financial Disclosure ('TCFD'). This not
only allows companies to better manage and ultimately reduce
emissions but has also enhanced HSBC Asset Management's ESG
investment analysis.
ESG integration process
Consideration of relevant ESG factors, and stewardship across HSBC
Asset Management's equity and fixed income holdings, can help
support risk mitigation and long-term value creation for HSBC clients.
Investment analysts and portfolio managers identify and manage ESG
risks and opportunities and consider ESG issues within HSBC Asset
Management's research and active investment processes. Locations
within HSBC Asset Management will be guided by the principles set
our, however the level of application may vary and is dependable on
the availability of the data of local issues and applicability to the
Fund’s strategy. ESG considerations are typically part of HSBC Asset
Management's security analysis alongside fundamental financial
analysis. HSBC Asset Management strives to identify E, S and G
factors which may have a potential material impact today or in the
future.
Voting and shareholder engagement
HSBC Asset Management has publicly available global responsible
investment policies and publishes its stewardship and voting
approach. Through understanding how companies and issuers
manage their environmental and social impact, and how they operate
and interact with stakeholders, HSBC Asset Management aims to add
value by identifying important ESG risks and opportunities. Effective
use of voting rights also incentivise positive corporate development,
drive behavioural change, and hold company directors accountable
when they do not meet its expectations. Engagement with
companies set out in the HSBC Asset Management Global
Stewardship Plan priority list is part of the research process and long-
term investment approach at HSBC Asset Management. Equity and
credit analysts from the active management teams, together with
portfolio managers, are in direct contact with relevant issuers and
follow up ESG issues as part of their research and discussions.
– Different investment approaches have very different associated
ESG risks and opportunities. Implementation of ESG integration
will therefore depend on the investment strategy employed
alongside the fund prospectus and/or client agreement. For
passive and equity indexing funds & mandates, ESG activity is
principally focused on stewardship as security selection is
determined by the index. For quantitative strategies, ESG factors
may be amongst those included in security selection but ESG
activity is otherwise limited to stewardship. In addition, local
market data availability limitation is much higher than in other
countries. Multi asset portfolios invest in a range of asset classes
and strategies, including third party funds, that have various levels
of ESG activity from security selection to stewardship. For
Liquidity, HSBC Asset Management offers specific strategies
which incorporate ESG factors in security selection through a
combination of positive and negative screening. Liquidity
strategies rely on HSBC Asset Management’s credit process
which incorporates ESG risks alongside other factors in the
fundamental credit analysis.
Building employees' expertise in sustainable finance issues
To encourage employees to develop their expertise around
sustainable finance and investment challenges, HSBC Asset
Management has organised a series of global initiatives:
– HSBC Asset Management collaborated with Fitch Learning and
rolled out ESG Investing Fundamentals and Advanced
certifications and assigned these to a number of colleagues within
Asset Management.
– HSBC Asset Management also supports its employees in
obtaining external certifications, such as the CFA Certificate in
ESG Investing.
– Responsible Investment Talks led by the Global office were held
with internal experts and external speakers, aimed at educating
HSBC Asset Management's employees on sustainability issues.
Topics covered in 2023 were Sustainability Governance and ESG
Regulation Developments and Global Greenwashing Risk.
– Mandatory Sustainability Objectives were set for staff in
Investments alongside a dedicated upskilling Degreed training
programme.
Operational carbon footprint and pathway to net zero
During 2023, HSBC continued to focus on Sustainability and driving
our Net Zero targets. Material progress was achieved in the reduction
of Carbon Emissions (16% reduction from 2022 levels) , Energy
Consumption (10% lower than 2022) and Paper Consumption (11%
reduction from 2022 levels) through ongoing initiatives. These include
using low carbon materials for construction through innovative
concrete production, reusing existing HSBC furniture from other sites,
and encouraging customers to switch from paper correspondence to
using digital channels. Our ESG and Net zero strategy also includes a
Green Travel plan and Eat Well Live Well initiatives for employees
among others.
The biggest impact on our carbon footprint is our property portfolio
management and during the past year we have continued major

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 27

works on the HSBC HUB which is transforming our office buildings in
Qormi. The HSBC HUB is the largest capital expenditure project for
HSBC in Europe, creating innovative, sustainable, and modern space
for our customers and HSBC colleagues, with one of the largest
single floor office spaces in Malta (over 2,330sqm). The project has
successfully progressed with the first phase of the project opening its
doors on the 22 nd of January 2024, welcoming 230 colleagues and
offering multi-use meeting rooms and conference spaces. As part of
the HSBC HUB project we are delivering a number of Net Zero
initiatives, such as hybrid working which reduces our office portfolio
by 30%, energy saving installations including ambient temperature
control setting, LED lighting, sensors across the floors and meeting
rooms and double glazing windows, measures to reduce water
consumption through the installation of flow restrictors, auto-taps and
low or zero flush sanitary fittings, waste and paper reducing initiatives
and electric car charging facilities. The upcoming HSBC HUB Phases
(in 2024-2025) will include a solar farm which will potentially provide
for the largest part of our electricity needs in future years. The project
is aiming for Gold or Platinum status LEED accreditation and is already
well on track to meet these requirements.
Greenwashing and unfair business practices
Greenwashing approach
The risk of greenwashing is considered at HSBC as an important
evolving risk which is likely to increase over time in an evolving
regulatory environment context mainly in Europe resulting from an
increase of expectations and scrutiny in relation of ESG risk.The risk
of greenwashing is defined as knowingly, or unknowingly misleading
stakeholders in relation to the bank's sustainability commitment or
targets, products or services offered to clients stated sustainability
objectives, or the climate commitments or performance of HSBC
customers which are not aligned to HSBC commitments. It can
materialize across all businesses, and functions and can lead to
reputational damage, regulatory censure and/or litigation.
Business practices framework
For HSBC, best practice consists of taking actions and making
decisions that are fair for its customers and do not disrupt the proper
and transparent operation of financial markets. These principles are
essential to ensure long-term success and provide the best service to
HSBC Bank Malta p.l.c. customers. To achieve this, the bank has clear
directives, frameworks and governance principles covering its culture,
its behaviour, the design of products and services, training and
remuneration of employees, interactions with customers and internal
communication.
All HSBC employees have to act with integrity, take responsibility and
accountability as detailed in HSBC Conduct Approach which is the
central reference to guide colleagues to understand the
consequences of good or poor decisions for customers and other
stakeholders. In 2022, the refreshed Conduct Approach was aligned
to one of the refreshed values ‘We Take Responsibility’ and
structured around five outcomes to be achieved for customers and
markets in a simplest and understandable approach.
In 2023, all lines of businesses and functions have conducted a
conduct self-assessment ensuring to be well-aligned with the
Purpose Led Conduct Approach. Employees performed a Group
mandatory conduct training "Creating value Together" launched during
the last quarter of 2023, achieving a rate of complexion of 97 per
cent.
Preventing the risk of corruption
HSBC is committed to high standards of ethical behaviour and
operates a zero-tolerance approach to bribery and corruption. We
consider such activity to be unethical and contrary to good corporate
governance and require compliance with all anti-bribery and corruption
laws in all markets and jurisdictions in which we operate. We have a
Global Anti-Bribery and Corruption Policy which gives practical effect
to global initiatives such as the Organisation of Economic Cooperation
and Development (‘OECD’) Convention on Combating Bribery of
Foreign Public Officials in International Business Transactions and
Principle 10 of the United Nations Global Compact. In regard to
combating corruption, HSBC Continental Europe is committed to
complying with France's Sapin 2 Law and to adopting a zero-tolerance
attitude to corruption.
HSBC Bank Malta p.l.c. has implemented a Compliance programme
applying to all its activities with the objective to strengthen the HSBC
Bank Malta p.l.c.’s anti-bribery and corruption (‘AB&C’) framework and
align it with the requirements established by the Law. The
programme enabled the enhancement of the HSBC Bank Malta
p.l.c.’s corruption risk mapping, the identification and deployment of
accounting controls to prevent and detect bribery and corruption, the
implementation of AB&C Customer and Third-Party Due
Diligences,the update of local Policy and procedures or the publication
of specific Codes of conduct.
More information about HSBC anti-bribery and corruption policies at
https://www.hsbc.com/who-we-are/esg-and-responsible-business/
fighting-financial-crime/financial-crime-risk-policies
Preventing the risk related to tax evasion
HSBC is committed to complying with the letter and spirit of all
acceptable tax laws. The Global Anti-Tax Evasion Facilitation Policy
sets out the key principles and minimum control requirements to
apply a consistent and standardised approach to both managing the
risk of customer tax evasion. In this regard HSBC has reasonable
procedures in place designed to prevent tax evasion facilitation by any
third party acting on behalf of HSBC.
HSBC Bank Malta p.l.c. is committed to acting with integrity and
conducting activities in accordance with all applicable laws and
regulations relating to financial crime risks as well as the standards
set out by HSBC in its Global Tax Anti-Facilitation Policy.
The bank’s Risk Management Framework ('RMF') sets out the
responsibilities of employees, depending on whether they are Risk
Owners, Control Owners, Risk Stewards, or other, for managing risk,
including tax evasion risk. The RMF makes it clear that there must be
a clear segregation between risk ownership, i.e. First Line of Defence,
risk oversight and stewardship, and independent assurance to help
support effective identification, assessment, management, and
reporting of risks. The material tax evasion risks that the bank faces
are:
– Customer tax evasion – the risk that the bank’s products or
services are associated with customer tax evasion and the risk
that employees facilitate customer tax evasion;
– Facilitation by third parties and Associated Persons ('APs') – The
risk that third party APs (excluding employees) facilitate tax
evasion while acting for or on behalf of the bank;
– Product risk – The risk that the bank’s products or services are
designed, or could be seen as designed, to facilitate customer tax
– evasion;
– Payments to employees – The risk that the bank (or the bank
acting through its third party APs) assists in structuring
remuneration, allowances, benefits or business expenses in a way
which facilitates evasion of tax by the employee;
– Payments to third parties – The risk that the bank (or the bank
acting through its third party APs) assists in structuring payments
to third parties for products or services in a way which facilitates
the third party (including non-APs) to evade tax. The scope
includes contractors, personal service companies, and ‘umbrella’
companies;
– Strategic transactions including acquisitions or disposals of shares,
securities or partnership interests by HSBC Group entities – The
risk that employees or other APs appointed by the bank assist in
structuring a transaction in a way which facilitates tax evasion by a
counterparty.
The bank’s Global Anti-Tax Evasion Facilitation Policy aims to ensure
that HSBC’s banking services are not associated with any
arrangement known or suspected to be designed to facilitate tax
evasion.
Key controls to mitigate these risks include assessing the integrity of
customers, third parties, new or significantly modified products, and
strategic transactions to identify and assess these risks. the drafting
of contractual clauses in contracts with third parties, the
implementation of controls on supplier processes, the training of
employees at the global level supplemented, where appropriate, by
training of local teams, and incentives for whistleblowers. In addition,
Report of the Directors

28 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

the bank maintains a dashboard dedicated to the risk of tax evasion to
monitor the management of this risk. This dashboard includes a series
of control indicators and key risk indicators related to tax evasion and
is monitored on a monthly basis.
Cybersecurity and IT attacks
HSBC Bank Malta p.l.c., in common with other organisations, is
subject to a growing number of increasingly sophisticated
cyberattacks that can in some instances affect its operations,
including the availability of digital facilities for customers. The bank’s
IT security system is crucial for the proper functioning of its banking
services, the protection of its customers and of the HSBC brand. With
the aim of maintaining it at its best possible level, HSBC Bank Malta
p.l.c. continues to strengthen its technical resources, its monitoring
systems and its governance to prevent and withstand the growing
threat from cyber-attacks.
The cyber threat is a top priority for the management team and is the
subject of regular communication and discussion in order to ensure
the appropriate visibility, governance and support for HSBC
cybersecurity programme. HSBC Bank Malta p.l.c. did not disclose
moderate, major or extreme incidents in 2023. The Bank achieved its
goal to prevent any significant cybersecurity incidents, However, in
2023, whilst not significant as per HSBC Risk Prioritisation Matrix, 2
Cyber incidents in scope for Malta were notified to the European
Central Bank ('ECB'). All were impacting HSBC third parties.
EU Taxonomy economic performance
indicators 1,3
Climate change mitigation and climate
change adaptation objectives and the non-
climate environmental objectives 1,3
In order to meet the European Union’s (‘EU’) climate and energy
targets for 2030, the European Commission (‘EC’) has created the EU
Taxonomy classification system for 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’)2,3 followed by
an amendment to the Delegated Act in 2022 to include certain energy
sectors and in 2023 the EC amended the Disclosures Delegated Act
to align the disclosure requirements with the Environmental
Delegated Act. Under these regulations, HSBC Bank Malta p.l.c. is
therefore required to provide information to investors about the
environmental performance of its assets and economic activities.
In the first two years of disclosure from 2021, information was
provided on the bank’s counterparty exposures towards Taxonomy
‘eligible’ economic activities, in respect of total on-balance sheet
assets. This was reported on the basis of the local group’s prudential
consolidation in each respective reporting period.
In this disclosure, as required from 1 January 2024, information is
presented on Taxonomy-alignment of economic activities (i.e.
disclosure of the key performance indicators) where Taxonomy
‘eligible’ economic activities are assessed to determine whether they
are environmentally sustainable (i.e. Taxonomy ‘aligned’) against
technical screening criteria.
In 2024, under the Disclosures Delegated Act, the bank is not
required to report KPIs with comparative information in the first year
of reporting. Accordingly, comparative information has not been
reported.
Scope of consolidation
The Taxonomy KPIs in the templates presented are calculated based
on exposures and balances within the local group’s prudential scope
of consolidation as at 31 December 2023. Therefore, the Bank’s EU
Taxonomy KPIs comprise assets and activities relating to HSBC Bank
Malta p.l.c. and HSBC Global Asset Management (Malta) Ltd. HSBC
Life Assurance (Malta) Ltd is excluded from the scope of prudential
consolidation.
EU Taxonomy KPIs disclosed and
Reporting Limitations
The following KPIs are reported in the templates presented.
The green asset ratio (‘GAR’) is a ratio calculated as the percentage of
EU Taxonomy-aligned assets as a proportion of total covered assets.
– The numerator of the GAR includes loans and advances, debt
securities, equities and repossessed collateral financing taxonomy-
aligned economic activities based on turnover KPI and CapEx KPI
of underlying assets.
– The denominator of the GAR includes total loans and advances,
total debt securities, total equities and total repossessed
collaterals and all other covered on-balance sheet assets.
The calculation of KPIs for off-balance sheet exposures includes
financial guarantees granted by the bank and assets under
management, reported both in Template 1 relating to GAR as off-
balance sheet items and also in Template 5 as off-balance sheet
items in their own right. Other off-balance sheet exposures such as
commitments are excluded from both KPIs.
The green ratio for financial guarantees to financial and non-financial
undertakings (‘FinGuar KPI’) is calculated as the percentage of
guarantees supporting loans and advances and debt securities
financing Taxonomy-aligned economic activities as a proportion of
total financial guarantees.
The green ratio for assets under management (‘AuM KPI’) is
calculated as a percentage of assets under management from
undertakings financing Taxonomy-aligned economic activities.
On 21st December 2023, the European Commission published a Draft
Commission Notice on the interpretation and implementation of
certain legal provisions of the Disclosures Delegated Act under Article
8 of the EU Taxonomy Regulation. This notice includes a number of
clarifications on and for the implementation of the requirements
provided for by the Disclosures Delegated Act. These requirements
have been complied with as far as possible, however, this notice is
still in a draft form and is not yet applicable and binding for the 2023
disclosure. Given the very short period between the publication of
such notice and the publication date of the HSBC Bank Malta p.l.c.’s
results, it has not been operationally possible to implement all aspects
of the notice in time for this reporting year. As a result, the following
KPIs are excluded from this report:
– Separate KPIs for the local group’s respective asset management
and insurance activities, pertaining to Annex III and Annex IX of the
Disclosures Delegated Act respectively, in addition to the bank’s
activities as a credit institution.
– The inclusion of a consolidated group-level KPI in the form of a
weighted average of the corresponding KPIs for each business
segment in the contextual disclosures.
In addition, Template 4 ‘GAR KPI Flow’, and Template 5 ‘KPI off-
balance sheet exposures’, on a ‘flow’ basis, of Annex VI of the
Disclosures Delegated Act have also not been disclosed given the
recency of the above-mentioned Draft Commission Notice.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 29

KPI: Green Asset Ratio
Total covered assets
The calculation of the Taxonomy on-balance sheet KPIs include on-
balance exposures covering loans and advances, debt securities and
equity instruments not held for trading and repossessed collateral.
This includes exposures to undertakings such as large EU banks,
asset managers, insurance companies and issuers that are in scope of
Articles 19a or 29a of Directive 2013/34/EU4 (‘NFRD’).
Retail exposures except for the mortgage lending portfolios, credit
consumption loans for cars and building renovations loans are
excluded from the Taxonomy framework and not assessed for
Taxonomy eligibility. On this basis, these exposures are included
within the category of “Other assets’’.
Taxonomy-eligible and aligned economic
activities.
Taxonomy-eligible economic activities are those activities which can
be assessed as environmentally sustainable. Taxonomy-aligned
economic activities are those activities which have been assessed as
environmentally sustainable.
Eligibility and alignment of general purpose lending where the use of
proceeds is unknown, have been assessed using the turnover and
CapEx eligibility and alignment ratios published in the most recently
available annual reports by the bank’s counterparties in scope of
NFRD.
Eligibility and alignment of specific purpose lending, where the use of
proceeds is known, such as retail loans collateralised by residential
immovable property, building renovation loans, and motor vehicle
loans, have been assessed in line with the technical screening criteria
established in the EU Taxonomy, comprising ‘substantial contribution’
and ‘do no significant harm’ criteria, along with compliance with
minimum safeguards, the latter not applicable to households and
public authorities.
In certain cases, the bank is unable to obtain the required information
from counterparties. For example, financial undertakings are only
required to disclose KPIs in accordance with the EU Taxonomy for the
first time in 2024, therefore at the time of publication, such
counterparty data is not available and exposures to financial
undertakings can only be assessed for eligibility and not alignment.
In all templates, ‘Environmentally sustainable assets’ refers to
Taxonomy aligned assets.
Taxonomy non-eligible economic activities
Taxonomy non-eligible economic activities are those activities which
cannot be assessed as environmentally sustainable. This relates to
exposures towards activities which are not covered by the EU
Taxonomy framework.
Assets excluded from the numerator for
GAR calculation (covered in the
denominator)
Exposures to undertakings not in scope of NFRD
Exposures to undertakings that are not obliged to publish Non-
Financial Reporting information have been excluded from the
assessment of Taxonomy-eligible economic activities. These
exposures are excluded from the numerator of the GAR but included
in the denominator.
Derivatives
Derivatives in the banking book are excluded from the numerator but
included in the denominator of the total GAR.
On demand interbank loans
On demand interbank loans are on-demand loan exposures with other
credit institutions. These are excluded from the numerator but
included in the denominator of the total GAR.
Cash and cash-related assets
Cash and cash-related assets are excluded from the numerator but
included in the denominator except for cash with central banks which
is not covered by the GAR calculation.
Other assets
Other assets include other retail exposures not covered by the
Taxonomy framework, cash, tangible and intangible assets, all of
which are excluded from the Taxonomy framework and therefore
cannot be assessed for Taxonomy eligibility. Other assets are
included in the total assets used in the denominator for the calculation
of the ratios.
Assets not covered for GAR calculation
Assets not covered in the GAR calculation are excluded from both the
numerator and denominator.
Central governments and Supranational issuers
Exposures to central governments and supranational issuers are out
of scope for the GAR calculation. Lending to or financing of local
governments where the use of proceeds is unknown (i.e. general
purpose lending) is also excluded from the numerator and the
denominator of the GAR and these exposures have been included as
part of Central governments and supranational issuers.
Central banks
Exposures to Central banks includes cash held and all other banking
exposures with central banks. These are out of scope for the GAR
calculation.
Trading book
Trading derivatives are included in the Trading book, as are trading
exposures to central governments, central banks and supranational
issuers. These are out of scope for the GAR calculation.
Data limitations
HSBC Bank Malta p.l.c. is dependent on several data sources to
determine exposures subject to NFRD and calculate Taxonomy ratios.
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 local group 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.
Eligibility by environmental objective
Prior to the release of amended templates published by the EC in
June 2023, non-financial undertakings were not required to report
taxonomy eligibility of an economic activity by environmental
objective. However, since the publication of revised templates, non-
financial undertakings will be required to report taxonomy eligibility
split by environmental objective from 1 January 2024. As a result, at
the time of publication, taxonomy eligible KPIs by environmental
objective for the bank’s non-financial counterparties are not available.
In order to meet the requirement to report based on actual
information provided by counterparties, only total eligibility
(CCM+CCA) will be reported in the relevant templates without
disclosing separately in the columns for each of the environmental
objectives.
Non-financial counterparty eligibility and alignment data
HSBC Bank Malta p.l.c. is highly reliant on published counterparty
eligibility and alignment ratios to assess eligibility and alignment of
exposures. The bank places reliance on 3rd party data vendors to
collect the majority of the eligibility and alignment data used in KPI
calculations. A number of checks and controls are operated to validate
any data used and this has identified that counterparty data quality
and consistency is variable. Controls in place include checking for
template mathematical accuracy, checking enabling and transitional
activities reported are consistent with the EU Taxonomy framework,
checking for incomplete data, and checking for consistency of
calculations across counterparties. For issues identified with
Report of the Directors

30 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

incomplete data, where sufficient data is available, reasonable
assumptions are made. Otherwise reporting is simplified where
required or, as a last resort, the data is not used. Where there is
sufficient information to identify the cause of a mathematical error, or
a reasonable assumption can be taken, mathematical errors are
corrected. Some counterparties calculate ratios using a different
calculation methodology and, in these cases, where sufficient
information is available to do so, the data is normalised so that data
between counterparties is comparable and can be used consistently
across calculations.
Exposures subject to the Non Financial Reporting
Directive 2,3
In determining the methodology for identifying exposures subject to
NFRD it has been necessary to make some judgements, considering
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, for some of counterparties, it has not been possible
to assess all the criteria required to determine the NFRD status.
Instead, reliance has been placed upon a simplification using the
available internal data, as well as data provided by third party vendors.
The counterparty data considered in making an assessment included,
where available: country of incorporation, customer group by global
business segment, turnover, balance sheet size, number of
employees, and ultimately, availability of NFRD and Taxonomy
reporting.
For NFRD counterparties that have taken the exemption to report at
subsidiary level because they are included in the consolidated
reporting of their parent, the parent’s Taxonomy KPIs have not been
relied upon unless the parent undertaking has clearly stated that the
relevant subsidiary has taken the exemption option to report
Taxonomy KPIs.
Household exposures
Loans to households collateralised by residential property and loans to
households for building renovations have been assessed as eligible
under the Climate Change Mitigation objective in accordance with the
definition of activities 7.1 to 7.7 in the Climate Delegated Act. Loans
to households for the purchase of motor vehicles, where granted
after 1 January 2022, have been assessed as eligible under the
Climate Change Mitigation objective in accordance with the definition
of activity 6.5 of the Climate Delegated Act. However, there is
insufficient data available to fully assess any of these exposures for
alignment against the technical screening criteria and in particular, the
do no significant harm criteria.
Business strategy
The HSBC Group places climate and sustainability at the heart of its
engagement with customers, and in particular those customers with
the greatest potential to effect change. HSBC Group has designed
and implemented a process, application and framework to gather
client’s transition plan data in a structured, governed way, to
summarise it, and to assess it consistently and effectively. The
transition plan assessment highlights potential opportunities to
engage with clients and support them in their transition to net zero.
(More details on how the HSBC Group assesses corporate
customers’ transitions to net zero can be found in the HSBC Net Zero
Transition Plan 2024. As a Group, HSBC aims to provide and facilitate
$750bn to $1tn of sustainable finance and investment by 2030 to
support customers in their transition to net zero and a sustainable
future.
HSBC Bank Malta p.l.c. is in the early stages of integrating EU
Taxonomy considerations into the broader climate strategy. The bank
aims to support customers who are at differing stages in their
transition journey; for example, supporting clients in high emissive
sectors to reduce their GHG emissions. Consequently, not all
sustainable finance provided by the bank, and in particular transition
finance, will meet the strict criteria for EU Taxonomy alignment.
The composition of the local group’s banking book is a key driver of
the GAR. With NFRD counterparties only making up a small fraction
of the overall book, the majority of wholesale exposures are outside
the scope of eligibility assessment under the EU Taxonomy
framework. Furthermore, for those exposures where the use of
proceeds is known to be applied to eligible activities, such as green
bonds and property-related lending, data limitations result in limited
ability to comprehensively assess against the alignment criteria.
As the scope of the EU Taxonomy expands to cover counterparties
reporting under the CSRD, and as data capabilities and market data
availability improves, it is expected that reporting and strategy will
evolve.
Non-climate environmental objectives
In 2023, the EC enacted into law the Commission Delegated
Regulation (EU) 2023/2486 (‘Environmental Delegated Act’) and
amendments to the Disclosures Delegated Act introducing new
reporting requirements for the four non-climate environmental
objectives. This requires both financial and non-financial undertakings
to disclose Taxonomy-eligibility information for the non-climate
remaining environmental objectives from 1 January 2024.
As the timing for the introduction of these new disclosure
requirements for financial undertakings coincides with the application
timeline for non-financial undertakings, the required counterparty data
is not available at the time of publication for reporting under
mandatory disclosures. Accordingly, the columns requiring disclosure
information related to the remaining environmental objectives have
been excluded in all templates.
1 Taxonomy Regulation (EU) 2020/852.
2 Commission Delegated Regulation (EU) 2021/2178.
3 Commission Delegated Regulation (EU) 2023/2486 supplementing
Taxonomy Regulation and amending Disclosures Delegated Act.
4 The CSRD amends the Non-Financial Reporting Directive (NFRD) -
Directive 2013/34/EU.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 31

Summary of KPIs (Template 0)
This template sets out a summary of KPIs required to be disclosed by
HSBC Bank Malta p.l.c. as a credit institution, under Article 8 of the
Taxonomy regulation. The template disclosed is provided in Annex VI
to the Disclosures Delegated Act but has been modified by adding
additional columns and clarifying column headings to clearly
distinguish KPIs calculated using counterparty Turnover ratios versus
KPIs calculated using counterparty CapEx ratios, both of which are
required to be reported by credit institutions.
As the Trading book KPI and Fees and Commissions KPI are required
to be disclosed from 1January 2026, the applicable rows for these
KPIs have not been included in the Summary template.

Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation
| Total environmentally sustainable assets (Based on Turnover) | KPI Based on Turnover KPI of the counterparty | Total environmen tally sustainable assets (Based on CapEx) | KPI Based on CapEx KPI of the counterparty | % coverage (over total assets) | % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) | % of assets excluded from the denominato r of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V)
|  | €000 | % | €000 | % | % | % | %
Main KPI | Green asset ratio (GAR) stock | — | — | — | — | 61.57 | 25.40 | 38.43
| Total environmentally sustainable activities | KPI |  | KPI | % coverage (over total assets) | % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) | % of assets excluded from the denominato r of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V)
|  | €000 | % | €000 | % | % | % | %
Additional KPIs | Financial guarantees | — | — | — | — |  |  |
| Assets under management | 2,294 | 0.58 | — | — |  |  |

Assets for the calculation of GAR - Covered assets (GAR,off-bal) (Template 1)
This template presents assets used in the calculation of the GAR
disaggregated by counterparty type and asset class. Total assets are
further categorised between covered assets in the numerator,
covered assets in the denominator, and assets excluded from the
GAR calculation, with eligible and aligned covered assets presented
by environmental objective. This template is provided in Annex VI to
the Disclosures Delegated Act.
Row 1 of Template 1 ‘Loans and advances, debt securities and equity
instruments not HfT eligible for GAR calculation' relates to the
numerator of the GAR, whilst row 48 of Template 1 ‘Total GAR
assets’ relates to the denominator of the GAR.
This template has been duplicated to present the information based
on each of Turnover and CapEx KPIs reported by HSBC Bank Malta
p.l.c.’s counterparties.
The gross carrying amount column excludes impairment allowances
for all banking exposures. As a result, Total Assets reported in this
template is not equal to Total Assets reported in HSBC Bank Malta
p.l.c.’s balance sheet with the difference due to impairment
allowances on banking exposures.
Row 34 'SMEs and NFCs (other than SMEs) not subject to NFRD
disclosure obligations' includes non-NFRD financial and non-financial
undertakings in the EU, whether or not they are classified as SMEs.
Financial guarantees represent financial guarantees granted by HSBC
Bank Malta p.l.c. to support an underlying loan or debt security. The
assessment of eligibility and alignment is based on the reported KPIs
of the obligor in relation to the underlying loan since information on
specific use of proceeds for these loans is not available.
The gross carrying amount presented for Financial Guarantees and
Assets Under Management forms the denominator of the respective
KPIs and includes exposures with both NFRD and non-NFRD
counterparties while excluding exposures to central governments,
central banks and supranational issuers.
Report of the Directors

32 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Assets for the calculation of GAR-Based on Counterparty Turnover
|  | a | b | c | d | e | f | g | h | i | j | ab | ac | ad | ae | af
| Disclosure reference date T
Total [gross] carry- ing amount | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
of which: towards taxonomy relevant sectors (Taxonomy-eligible) | of which: towards taxonomy relevant sectors (Taxonomy-eligible) |
| of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned)
|  | of which: Use of Proce- eds | of which: trans- itional | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling
|  | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
| GAR - Covered assets in both numerator and denominator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1 | Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation | 2,544,575 |  | — | — | — | — |  | — | — | — | 2,294,676 | — | — | — | —
2 | Financial undertakings | 229,300 |  | — | — | — | — |  | — | — | — | 22,257 | — | — | — | —
3 | Credit institutions | 229,300 |  | — | — | — | — |  | — | — | — | 22,257 | — | — | — | —
4 | Loans and advances | 207,043 |  | — | — | — | — |  | — | — | — | — | — | — | — | —
5 | Debt securities, including UoP | 22,257 |  | — | — | — | — |  | — | — | — | 22,257 | — | — | — | —
6 | Equity instruments | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
7 | Other financial corporations | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
8 | – of which: investment firms | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
9 | Loans and advances | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
10 | Debt securities, including UoP | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
11 | Equity instruments | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
12 | – of which: management companies | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
13 | Loans and advances | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
14 | Debt securities, including UoP | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
15 | Equity instruments | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
16 | – of which: insurance undertakings | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
17 | Loans and advances | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
18 | Debt securities, including UoP | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
19 | Equity instruments | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
20 | Non-financial undertakings | 33,928 |  | — | — | — | — |  | — | — | — | 1,444 | — | — | — | —
21 | Loans and advances | 33,928 |  | — | — | — | — |  | — | — | — | 1,444 | — | — | — | —
22 | Debt securities, including UoP | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 33

Assets for the calculation of GAR-Based on Counterparty Turnover (continued)
|  | a | b | c | d | e | f | g | h | i | j | ab | ac | ad | ae | af
| Disclosure reference date T
Total [gross] carry- ing amount | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
of which: towards taxonomy relevant sectors (Taxonomy-eligible) | of which: towards taxonomy relevant sectors (Taxonomy-eligible) |
| of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned)
|  | of which: Use of Proce- eds | of which: trans- itional | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling
|  | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
23 | Equity instruments | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
24 | Households | 2,160,409 |  | — | — | — | — |  | — | — | — | 2,150,436 | — | — | — | —
25 | – of which: loans collateralised by residential immovable property | 2,137,020 |  | — | — | — | — |  | — | — | — | 2,137,020 | — | — | — | —
26 | – of which: building renovation loans | 2,291 |  | — | — | — | — |  | — | — | — | 2,291 | — | — | — | —
27 | – of which: motor vehicle loans | 21,098 |  | — | — | — | — |  |  |  |  | 11,125 | — | — | — | —
28 | Local governments financing | 117,717 |  | — | — | — | — |  | — | — | — | 117,717 | — | — | — | —
29 | Housing financing | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
30 | Other local government financing | 117,717 |  | — | — | — | — |  | — | — | — | 117,717 | — | — | — | —
31 | Collateral obtained by taking possession: residential and commercial immovable properties | 3,221 |  | — | — | — | — |  | — | — | — | 2,822 | — | — | — | —
32 | Assets excluded from the numerator for GAR calculation (covered in the denominator) | 1,786,860 |  | — | — | — | — |  | — | — | — | — | — | — | — | —
33 | Financial and Non-financial undertakings | 1,018,640 |  |  |  |  |  |  |  |  |  |  |  |  |  |
34 | SMEs and NFCs (other than SMEs) not subject to NFRD disclosure obligations | 1,017,091 |  |  |  |  |  |  |  |  |  |  |  |  |  |
35 | Loans and advances | 726,008 |  |  |  |  |  |  |  |  |  |  |  |  |  |
36 | – of which: loans collateralised by commercial immovable property | 293,476 |  |  |  |  |  |  |  |  |  |  |  |  |  |
37 | – of which: building renovation loans | 4,679 |  |  |  |  |  |  |  |  |  |  |  |  |  |
38 | Debt securities | 291,040 |  |  |  |  |  |  |  |  |  |  |  |  |  |
39 | Equity instruments | 43 |  |  |  |  |  |  |  |  |  |  |  |  |  |

Report of the Directors

34 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Assets for the calculation of GAR-Based on Counterparty Turnover (continued)
|  | a | b | c | d | e | f | g | h | i | j | ab | ac | ad | ae | af
| Disclosure reference date T
Total [gross] carry- ing amount | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
of which: towards taxonomy relevant sectors (Taxonomy-eligible) | of which: towards taxonomy relevant sectors (Taxonomy-eligible) |
| of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned)
|  | of which: Use of Proce- eds | of which: trans- itional | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling
|  | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
40 | Non-EU country counterparties not subject to NFRD disclosure obligations | 1,549 |  |  |  |  |  |  |  |  |  |  |  |  |  |
41 | Loans and advances | 629 |  |  |  |  |  |  |  |  |  |  |  |  |  |
42 | Debt securities | 920 |  |  |  |  |  |  |  |  |  |  |  |  |  |
43 | Equity instruments | — |  |  |  |  |  |  |  |  |  |  |  |  |  |
44 | Derivatives | 7,483 |  |  |  |  |  |  |  |  |  |  |  |  |  |
45 | On demand interbank loans | 518,531 |  |  |  |  |  |  |  |  |  |  |  |  |  |
46 | Cash and cash- related assets | 33,582 |  |  |  |  |  |  |  |  |  |  |  |  |  |
47 | Other categories of assets (e.g. Goodwill, commodities etc.) | 208,624 |  |  |  |  |  |  |  |  |  |  |  |  |  |
48 | Total GAR assets | 4,331,435 |  | — | — | — | — |  | — | — | — | 2,294,676 | — | — | — | —
49 | Assets not covered for GAR calculation | 2,703,804 |  |  |  |  |  |  |  |  |  |  |  |  |  |
50 | Central governments and Supranational issuers | 1,439,811 |  |  |  |  |  |  |  |  |  |  |  |  |  |
51 | Central banks exposure | 1,257,899 |  |  |  |  |  |  |  |  |  |  |  |  |  |
52 | Trading book | 6,094 |  |  |  |  |  |  |  |  |  |  |  |  |  |
53 | Total assets | 7,035,239 |  | — | — | — | — |  | — | — | — | 2,294,676 | — | — | — | —
Off-balance sheet exposures - Undertakings subject to NFRD disclosure obligations
54 | Financial guarantees | 10,279 |  | — | — | — | — |  | — | — | — | 3 | — | — | — | —
55 | Assets under management | 395,000 |  | 2,294 | — | 880 | — |  | — | — | — | 8,623 | 2,294 | — | 880 | —
56 | – of which: debt securities | 254,057 |  | 2,294 | — | 880 | — |  | — | — | — | 7,731 | 2,294 | — | 880 | —
57 | – of which: equity instruments | 87,225 |  | — | — | — | — |  | — | — | — | 892 | — | — | — | —

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 35

Assets for the calculation of GAR-Based on Counterparty CapEx
|  | a | b | c | d | e | f | g | h | i | j | ab | ac | ad | ae | af
| Disclosure reference date T
Total [gross] carrying amount | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
of which: towards taxonomy relevant sectors (Taxonomy-eligible) | of which: towards taxonomy relevant sectors (Taxonomy- eligible) |
| of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned)
|  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling
|  | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
| GAR - Covered assets in both numerator and denominator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1 | Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation | 2,544,575 |  | — | — | — | — |  | — | — | — | 2,297,626 | — | — | — | —
2 | Financial undertakings | 229,300 |  | — | — | — | — |  | — | — | — | 22,257 | — | — | — | —
3 | Credit institutions | 229,300 |  | — | — | — | — |  | — | — | — | 22,257 | — | — | — | —
4 | Loans and advances | 207,043 |  | — | — | — | — |  | — | — | — | — | — | — | — | —
5 | Debt securities, including UoP | 22,257 |  | — | — | — | — |  | — | — | — | 22,257 | — | — | — | —
6 | Equity instruments | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
7 | Other financial corporations | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
8 | – of which: investment firms | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
9 | Loans and advances | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
10 | Debt securities, including UoP | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
11 | Equity | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
12 | – of which: management companies | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
13 | Loans and advances | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
14 | Debt securities, including UoP | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
15 | Equity | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
16 | – of which: insurance undertakings | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
17 | Loans and advances | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
18 | Debt securities, including UoP | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
19 | Equity instruments | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
20 | Non-financial undertakings | 33,928 |  | — | — | — | — |  | — | — | — | 4,394 | — | — | — | —

Report of the Directors

36 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Assets for the calculation of GAR-Based on Counterparty CapEx (continued)
|  | a | b | c | d | e | f | g | h | i | j | ab | ac | ad | ae | af
| Disclosure reference date T
Total [gross] carrying amount | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
of which: towards taxonomy relevant sectors (Taxonomy-eligible) | of which: towards taxonomy relevant sectors (Taxonomy- eligible) |
| of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned)
|  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling
|  | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
21 | Loans and advances | 33,928 |  | — | — | — | — |  | — | — | — | 4,394 | — | — | — | —
22 | Debt securities, including UoP | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
23 | Equity instruments | — |  | — |  | — | — |  | — |  | — | — | — |  | — | —
24 | Households | 2,160,409 |  | — | — | — | — |  | — | — | — | 2,150,436 | — | — | — | —
25 | – of which: loans collateralised by residential immovable property | 2,137,020 |  | — | — | — | — |  | — | — | — | 2,137,020 | — | — | — | —
26 | – of which: building renovation loans | 2,291 |  | — | — | — | — |  | — | — | — | 2,291 | — | — | — | —
27 | – of which: motor vehicle loans | 21,098 |  | — | — | — | — |  |  |  |  | 11,125 | — | — | — | —
28 | Local governments financing | 117,717 |  | — | — | — | — |  | — | — | — | 117,717 | — | — | — | —
29 | Housing financing | — |  | — | — | — | — |  | — | — | — | — | — | — | — | —
30 | Other local government financing | 117,717 |  | — | — | — | — |  | — | — | — | 117,717 | — | — | — | —
31 | Collateral obtained by taking possession: residential and commercial immovable properties | 3,221 |  | — | — | — | — |  | — | — | — | 2,822 | — | — | — | —
32 | Assets excluded from the numerator for GAR calculation (covered in the denominator) | 1,786,860 |  | — | — | — | — |  | — | — | — | — | — | — | — | —
33 | Financial and Non-financial undertakings | 1,018,640 |  |  |  |  |  |  |  |  |  |  |  |  |  |
34 | SMEs and NFCs (other than SMEs) not subject to NFRD disclosure obligations | 1,017,091 |  |  |  |  |  |  |  |  |  |  |  |  |  |
35 | Loans and advances | 726,008 |  |  |  |  |  |  |  |  |  |  |  |  |  |

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 37

Assets for the calculation of GAR-Based on Counterparty CapEx (continued)
|  | a | b | c | d | e | f | g | h | i | j | ab | ac | ad | ae | af
| Disclosure reference date T
Total [gross] carrying amount | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
of which: towards taxonomy relevant sectors (Taxonomy-eligible) | of which: towards taxonomy relevant sectors (Taxonomy- eligible) |
| of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned)
|  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling
|  | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
36 | – of which: loans collateralised by commercial immovable property | 293,476 |  |  |  |  |  |  |  |  |  |  |  |  |  |
37 | – of which: building renovation loans | 4,679 |  |  |  |  |  |  |  |  |  |  |  |  |  |
38 | Debt securities | 291,040 |  |  |  |  |  |  |  |  |  |  |  |  |  |
39 | Equity instruments | 43 |  |  |  |  |  |  |  |  |  |  |  |  |  |
40 | Non-EU country counterparties not subject to NFRD disclosure obligations | 1,549 |  |  |  |  |  |  |  |  |  |  |  |  |  |
41 | Loans and advances | 629 |  |  |  |  |  |  |  |  |  |  |  |  |  |
42 | Debt securities | 920 |  |  |  |  |  |  |  |  |  |  |  |  |  |
43 | Equity instruments | — |  |  |  |  |  |  |  |  |  |  |  |  |  |
44 | Derivatives | 7,483 |  |  |  |  |  |  |  |  |  |  |  |  |  |
45 | On demand interbank loans | 518,531 |  |  |  |  |  |  |  |  |  |  |  |  |  |
46 | Cash and cash-related assets | 33,582 |  |  |  |  |  |  |  |  |  |  |  |  |  |
47 | Other categories of assets (e.g. Goodwill, commodities etc.) | 208,624 |  |  |  |  |  |  |  |  |  |  |  |  |  |
48 | Total GAR assets | 4,331,435 |  | — | — | — | — |  | — | — | — | 2,297,626 | — | — | — | —
49 | Assets not covered for GAR calculation | 2,703,804 |  |  |  |  |  |  |  |  |  |  |  |  |  |
50 | Central governments and Supranational issuers | 1,439,811 |  |  |  |  |  |  |  |  |  |  |  |  |  |
51 | Central banks exposure | 1,257,899 |  |  |  |  |  |  |  |  |  |  |  |  |  |
52 | Trading book | 6,094 |  |  |  |  |  |  |  |  |  |  |  |  |  |
53 | Total assets | 7,035,239 |  | — | — | — | — |  | — | — | — | 2,297,626 | — | — | — | —

Report of the Directors

38 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Assets for the calculation of GAR-Based on Counterparty CapEx (continued)
|  | a | b | c | d | e | f | g | h | i | j | ab | ac | ad | ae | af
| Disclosure reference date T
Total [gross] carrying amount | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
of which: towards taxonomy relevant sectors (Taxonomy-eligible) | of which: towards taxonomy relevant sectors (Taxonomy- eligible) |
| of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned) |  | of which: environmentally sustainable (Taxonomy-aligned)
|  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: enab- ling |  |  | of which: Use of Proc- eeds | of which: trans- itional | of which: enab- ling
|  | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
Off-balance sheet exposures - Undertakings subject to NFRD disclosure obligations
54 | Financial guarantees | 10,279 |  | — | — | — | — |  | — | — | — | 3 | — | — | — | —
55 | Assets under management | 395,000 |  | 4,558 | — | 2,356 | — |  | — | — | — | 21,213 | 4,558 | — | 2,356 | —
56 | – of which: debt securities | 254,057 |  | 4,558 | — | 2,356 | — |  | — | — | — | 17,525 | 4,558 | — | 2,356 | —
57 | – of which: equity instruments | 87,225 |  | — | — | — | — |  | — | — | — | 3,688 | — | — | — | —

GAR Sector information (Template 2)
This template presents eligible and aligned exposures in the banking book to non-financial counterparties, broken down by sector of economic
activities based on the NACE code of the principal activity of the immediate counterparty. The values reported under gross carrying amount
represents the taxonomy-eligible amount.
This template has been duplicated to present the information based on each of Turnover and CapEx KPIs reported by HSBC Bank Malta p.l.c.’s
counterparties.

GAR sector information - Based on Counterparty Turnover
|  | a | b | c | d | e | f | g | h | y | z | aa | ab
Breakdown by sector - NACE 4 digits level (code and label) | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
Non-Financial corporates (Subject to NFRD) | SMEs and other NFC not subject to NFRD | Non-Financial corporates (Subject to NFRD) | SMEs and other NFC not subject to NFRD | Non-Financial corporates (Subject to NFRD) | SMEs and other NFC not subject to NFRD
[Gross] carrying amount | [Gross] carrying amount | [Gross] carrying amount | [Gross] carrying amount | [Gross] carrying amount | [Gross] carrying amount
€000 | of which: environ- mentally sustain- able (CCM) | €000 | of which: environ- mentally sustain- able (CCM) | €000 | of which: environ- mentally sustain- able (CCA) | €000 | of which: environ- mentally sustain- able (CCA) | €000 | of which: environ- mentally sustain- able (CCM + CCA) | €000 | of which: environ- mentally sustain- able (CCM + CCA )
1 | C11.05 - Manufacture of beer | — | — |  |  | — | — |  |  | 6 | — |  |
2 | J61.10 - Wired telecommunications activities | — | — |  |  | — | — |  |  | 1,302 | — |  |
3 | M70.10 - Activities of head offices | — | — |  |  | — | — |  |  | 136 | — |  |

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 39

GAR sector information - Based on Counterparty CapEx
Breakdown by sector - NACE 4 digits level (code and label) | Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
Non-Financial corporates (Subject to NFRD) | SMEs and other NFC not subject to NFRD | Non-Financial corporates (Subject to NFRD) | SMEs and other NFC not subject to NFRD | Non-Financial corporates (Subject to NFRD) | SMEs and other NFC not subject to NFRD
[Gross] carrying amount | [Gross] carrying amount | [Gross] carrying amount | [Gross] carrying amount | [Gross] carrying amount | [Gross] carrying amount
€000 | of which: environ- mentally sustain- able (CCM) | €000 | of which: environ- mentally sustain- able (CCM) | €000 | of which: environ- mentally sustain- able (CCA) | €000 | of which: environ- mentally sustain- able (CCA) | €000 | of which; environ- mentally sustain- able (CCM + CCA) | €000 | of which: environ- mentally sustain- able (CCM + CCA)
1 | C11.05 - Manufacture of beer | — | — |  |  | — | — |  |  | 1,466 | — |  |
2 | J61.10 - Wired telecommunications activities | — | — |  |  | — | — |  |  | 1,610 | — |  |
3 | M70.10 - Activities of head offices | — | — |  |  | — | — |  |  | 1,318 | — |  |

GAR KPI stock (Template 3)
This template presents eligible and aligned exposures as a proportion of total covered assets. This template has been duplicated to present the
information based on each of Turnover and CapEx KPIs reported by HSBC Bank Malta p.l.c.’s counterparties.The bank's approach towards
disclosing GAR KPI ratios in this template is based on the amounts of covered assets disclosed in Template 1, whereby each ratio's
denominator is equal to the bank's total covered assets. This is in line with both guidance provided in the headers to Template 3, and also in line
with section 1.2.1.1 of the Disclosures Delegated Act, applicable to exposures to non-financial undertakings. In this respect, it is specified that
the denominator of the GAR should be extended to include "all other covered on-balance sheet assets". This approach has been applied
throughout Template 3 towards all relevant ratios disclosed.

GAR KPI stock - Based on Counterparty Turnover
|  | a | b | c | d | e | f | g | h | i | aa | ab | ac | ad | ae | af
% (compared to total covered assets in the denominator) | Disclosure reference date T
Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA) |
Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Propor- tion of total assets cove- red
| Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- aligned)
|  | of which: Use of Proc- eeds | of which: transi- tional | of which: enabl- ing |  |  | of which: Use of Proc- eeds | of which: enabl- ing |  |  | of which: Use of Proc- eeds | of which: transi- tional | of which: enabl- ing
|  | % | % | % | % | % | % | % | % | % | % | % | % | % | % | %
| GAR - Covered assets in both numerator and denominator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1 | Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation |  | — | — | — | — |  | — | — | — | 52.98 | — | — | — | — | 36.17
2 | Financial undertakings |  | — | — | — | — |  | — | — | — | 0.51 | — | — | — | — | 3.26
3 | Credit institutions |  | — | — | — | — |  | — | — | — | 0.51 | — | — | — | — | 3.26
4 | Loans and advances |  | — | — | — | — |  | — | — | — | — | — | — | — | — | 2.94
5 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | 0.51 | — | — | — | — | 0.32
6 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
7 | Other financial corporations |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
8 | – of which: investment firms |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —

Report of the Directors

40 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

GAR KPI stock - Based on Counterparty Turnover (continued)
|  | a | b | c | d | e | f | g | h | i | aa | ab | ac | ad | ae | af
% (compared to total covered assets in the denominator) | Disclosure reference date T
Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA) |
Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Propor- tion of total assets cove- red
| Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- aligned)
|  | of which: Use of Proc- eeds | of which: transi- tional | of which: enabl- ing |  |  | of which: Use of Proc- eeds | of which: enabl- ing |  |  | of which: Use of Proc- eeds | of which: transi- tional | of which: enabl- ing
|  | % | % | % | % | % | % | % | % | % | % | % | % | % | % | %
9 | Loans and advances |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
10 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
11 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
12 | – of which: management companies |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
13 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
15 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
16 | – of which: insurance undertakings |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
17 | Loans and advances |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
18 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
19 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
20 | Non-financial undertakings |  | — | — | — | — |  | — | — | — | 0.03 | — | — | — | — | 0.48
21 | Loans and advances |  | — | — | — | — |  | — | — | — | 0.03 | — | — | — | — | 0.48
22 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
23 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
24 | Households |  | — | — | — | — |  | — | — | — | 49.65 | — | — | — | — | 30.71
25 | – of which: loans collateralised by residential immovable property |  | — | — | — | — |  | — | — | — | 49.34 | — | — | — | — | 30.38
26 | – of which: building renovation loans |  | — | — | — | — |  | — | — | — | 0.05 | — | — | — | — | 0.03
27 | – of which: motor vehicle loans |  | — | — | — | — |  |  |  |  |  |  |  |  |  |
28 | Local governments financing |  | — | — | — | — |  | — | — | — | 2.72 | — | — | — | — | 1.67
29 | Housing financing |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
30 | Other local government financing |  | — | — | — | — |  | — | — | — | 2.72 | — | — | — | — | 1.67
31 | Collateral obtained by taking possession: residential and commercial immovable properties |  | — | — | — | — |  | — | — | — | 0.07 | — | — | — | — | 0.05
32 | Total GAR assets (in the numerator) |  | — | — | — | — |  | — | — | — | 52.98 | — | — | — | — | 61.57

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 41

GAR KPI stock - Based on Counterparty CapEx
% (compared to total covered assets in the denominator) | Disclosure reference date T
Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA) |
Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Propor- tion of total assets cove- red
| Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- aligned)
|  | of which: Use of Proc- eeds | of which: transi- tional | of which: enabl- ing |  |  | of which: Use of Proc- eeds | of which: enabl- ing |  |  | of which; Use of Proc- eeds | of which: transi- tional | of which: enabl- ing
|  | % | % | % | % | % | % | % | % | % | % | % | % | % | % | %
| GAR - Covered assets in both numerator and denominator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1 | Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation |  | — | — | — | — |  | — | — | — | 53.05 | — | — | — | — | 36.17
2 | Financial undertakings |  | — | — | — | — |  | — | — | — | 0.51 | — | — | — | — | 3.26
3 | Credit institutions |  | — | — | — | — |  | — | — | — | 0.51 | — | — | — | — | 3.26
4 | Loans and advances |  | — | — | — | — |  | — | — | — | — | — | — | — | — | 2.94
5 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | 0.51 | — | — | — | — | 0.32
6 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
7 | Other financial corporations |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
8 | – of which: investment firms |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
9 | Loans and advances |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
10 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
11 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
12 | – of which: management companies |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
13 | Loans and advances |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
14 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
15 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
16 | – of which: insurance undertakings |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
17 | Loans and advances |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
18 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
19 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
20 | Non-financial undertakings |  | — | — | — | — |  | — | — | — | 0.10 | — | — | — | — | 0.48
21 | Loans and advances |  | — | — | — | — |  | — | — | — | 0.10 | — | — | — | — | 0.48
22 | Debt securities, including UoP |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
23 | Equity instruments |  | — |  | — | — |  | — |  | — | — | — |  | — | — | —
24 | Households |  | — | — | — | — |  | — | — | — | 49.65 | — | — | — | — | 30.71
25 | – of which: loans collateralised by residential immovable property |  | — | — | — | — |  | — | — | — | 49.34 | — | — | — | — | 30.38
26 | – of which: building renovation loans |  | — | — | — | — |  | — | — | — | 0.05 | — | — | — | — | 0.03
27 | – of which: motor vehicle loans |  | — | — | — | — |  |  |  |  |  |  |  |  |  |

Report of the Directors

42 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

GAR KPI stock - Based on Counterparty CapEx (continued)
% (compared to total covered assets in the denominator) | Disclosure reference date T
Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA) |
Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Propor- tion of total assets cove- red
| Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- aligned)
|  | of which: Use of Proc- eeds | of which: transi- tional | of which: enabl- ing |  |  | of which: Use of Proc- eeds | of which: enabl- ing |  |  | of which; Use of Proc- eeds | of which: transi- tional | of which: enabl- ing
|  | % | % | % | % | % | % | % | % | % | % | % | % | % | % | %
28 | Local governments financing |  | — | — | — | — |  | — | — | — | 2.72 | — | — | — | — | 1.67
29 | Housing financing |  | — | — | — | — |  | — | — | — | — | — | — | — | — | —
30 | Other local government financing |  | — | — | — | — |  | — | — | — | 2.72 | — | — | — | — | 1.67
31 | Collateral obtained by taking possession: residential and commercial immovable properties |  | — | — | — | — |  | — | — | — | 0.07 | — | — | — | — | 0.05
32 | Total GAR assets (in the numerator) |  | — | — | — | — |  | — | — | — | 53.05 | — | — | — | — | 61.57

KPI off-balance sheet exposures (Template 5)
This template presents eligible and aligned off-balance sheet
exposures as a proportion of covered assets by Taxonomy
environmental objective. The covered assets forming the denominator
of each ratio is the respective off-balance sheet exposure (financial
guarantees or assets under management) including exposures with
both NFRD and non-NFRD counterparties while excluding exposures
to central governments, central banks and supranational issuers.
For these managed funds, a look through to the underlying
investments has been undertaken to identify those that are NFRD
where eligibility and alignment can be assessed. Where the
underlying investments are themselves funds, information regarding
the underlying investments is not available and these funds are
treated as non-NFRD.
This template has been duplicated to present the information based
on each of Turnover and CapEx KPIs reported by HSBC Bank Malta
p.l.c.’s counterparties.

KPI off-balance sheet exposures - Based on Counterparty Turnover
% (compared to total eligible off- balance sheet assets) | Disclosure reference date T
Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- eligible)
| Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned)
|  | of which: Use of Proceeds | of which: transit- ional | of which: enabling |  |  | of which: Use of Proceeds | of which: enabling |  |  | of which: Use of Proceeds | of which: transit- ional | of which: enabling
|  | % | % | % | % | % | % | % | % | % | % | % | % | % | %
1 | Financial guarantees (FinGuar KPI) |  | — | — | — | — |  | — | — | — | 0.03 | — | — | — | —
2 | Assets under management (AuM KPI) |  | 0.58 | — | — | — |  | — | — | — | 2.18 | 0.58 | — | — | —

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 43

KPI off-balance sheet exposures - Based on Counterparty CapEx
% (compared to total eligible off- balance sheet assets) | Disclosure reference date T
Climate Change Mitigation (CCM) | Climate Change Adaptation (CCA) | TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy- eligible)
| Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) |  | Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned)
|  | of which: Use of Proceeds | of which: transit- ional | of which: enabling |  |  | of which: Use of Proceeds | of which: enabling |  |  | of which: Use of Proceeds | of which: transit- ional | of which: enabling
|  | % | % | % | % | % | % | % | % | % | % | % | % | % | %
1 | Financial guarantees (FinGuar KPI) |  | — | — | — | — |  | — | — | — | 0.03 | — | — | — | —
2 | Assets under management (AuM KPI) |  | 1.15 | — | 0.60 | — |  | — | — | — | 5.37 | 1.15 | — | 0.60 | —

Nuclear and fossil gas - related activities (Template 1)
This template indicates whether, or not, the local group has exposures to Nuclear and Gas activities, based on non-financial counterparties’
Nuclear and Gas disclosures. As at 31 December 2023, the local group does not have any exposures to non-financial counterparties which carry
out nuclear energy and fossil gas related activities and are required to disclose templates introduced by the Complementary Climate Delegated
Act. The local group consequently does not disclose the remainder of the dedicated templates introduced by the Complementary Climate
Delegated Act (Templates 2 - 5) as regards such activities in certain energy sectors.

Template 1 Nuclear and fossil gas related activities
Row | Nuclear energy related activities |
1 | The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle. | NO
2 | The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies. | NO
3 | The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades. | NO
| Fossil gas related activities |
4 | The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. | NO
5 | The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels | NO
6 | The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels. | NO

Financial Crime Compliance
In 2023 the bank continued to apply a strong 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 risk 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
Report of the Directors

44 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 our risk appetite and strong
risk management capability. We aim to deliver sustainable and
diversified earnings as well as 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 requiremen ts.
We have no appetite for inappropriate market conduct by any
member of staff. We are committed to managing the climate risks
that have an impact on our financial position and delivering on our net
zero ambition.
Enterprise-wide application
Our risk appetite includes consideration of financial and non-financial
risks and is expressed in both quantitative and qualitative terms.
The Risk Appetite Statement is approved by the Board following
advice from the Risk Committee and is a key component of the risk
management framework, with the Risk Map and the Emerging risk
reports.
Setting out a risk appetite statement ensures that planned business
activities provide an appropriate balance of return for the risk being
taken, and that a suitable level of risk for our strategy is defined. In
this way, a risk appetite statement facilitates the financial planning
process and helps senior management of the bank to allocate capital
to business activities, services and products.
The business performance against these risk appetite metrics is
reviewed on a frequent basis in the Risk Management Meeting and
quarterly in the Risk Committee and Board. Details of metrics that
have fallen outside of the appetite/tolerance are provided, along with
remediating actions. This reporting allows risks to be promptly
identified and mitigated.
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 by our
three lines of defence model.
We aim to use a comprehensive risk management approach across
the organisation and across all risk types, underpinned by our culture
and values. This is outlined in our risk management framework,
including the key principles, policies and practices that we employ in
managing material risks, both financial and non-financial. The
framework fosters continual monitoring, promotes risk awareness,
and encourages a sound operational and strategic decision-making
and escalation process. It also supports a consistent approach to
defining, identifying, assessing, managing, and reporting the risks we
accept and incur in our activities, with clear accountabilities. We
continue to actively review and develop our risk management
framework and enhance our approach to managing risk, through our
activities with regard to people and capabilities; governance; reporting
and management information; credit risk management models; and
data.
Risk and Compliance is independent from the global businesses,
including our sales and trading functions, to provide challenge,
oversight, and appropriate balance in risk/reward decisions.
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 is 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 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 bank’s risk appetite 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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 45

The RAS consists of qualitative statement s 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.
Top and emerging risks
HSBC Malta uses a top and emerging risks process to provide a
forward looking view of issues with the potential to threaten the
execution of its strategy or operations over the medium to long term.
We proactively assess the internal and external risk environment, as
well as review the themes identified for any risks that may require
escalation. The bank updates its top and emerging risks as necessary.
Our risk management framework
The following diagram and descriptions summarise 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 bank’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 function helps ensure the necessary balance in risk/return decisions.
Processes and tools |  | Risk appetite |  | The local group 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 |  | HSBC has systems and/or processes that support the identification, capture and exchange of information to support risk management activities.

Risk governance
The Risk Committee is a committee of the Board and has
responsibility for oversight and advice to the Board, amongst other
things, the bank’s risk appetite, tolerance and strategy, systems of
risk management, internal control and compliance.
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 Chief Compliance Officer with other
business/ functions present for the discussion of risks within their
respective areas of responsibility.
In addition to the Risk Committee, the Risk Management Meeting
(‘RMM’), is the overarching executive management meeting for both
financial and non-financial risk management.
Chaired by the Chief Risk Officer, the Risk Management Meeting
gathers the members of the Executive Committee in order to
examine major risks faced by HSBC Bank Malta p.l.c.. During 2023
the Risk Management Meeting met nine times to examine these
risks.
It reviews financial and non-financial risks for the whole HSBC Bank
Malta p.l.c. perimeter, including the risks linked to Digital Business
Services, and the evolution of action plans put in place in order to
mitigate identified risks. The HSBC Bank Malta p.l.c. Risk
Management Meeting reports functionally to the HSBC Continental
Europe Risk Management Meeting, and to the HBMT Risk
Committee.
This framework is completed by dedicated risk forums and working
groups for specific risks in businesses and functions combining the
various levels of internal control, in order to manage, monitor and
control all HSBC activities within HSBC Bank Malta p.l.c.
Responsibility for managing both financial and non-financial risk lies
with all HSBC Bank Malta p.l.c. employees. They are required to
manage the risks of the business and operational activities for which
they are responsible. HBMT maintains oversight of its risks through
various Risk Stewards, as well as the accountability held by the Chief
Risk Officer.
Non-financial risk includes some of the most material risks HSBC
Bank Malta p.l.c. faces, such as cyber attacks, poor customer
outcomes and loss of data. Actively managing non-financial risk is
crucial to serve our customers effectively and in having a positive
impact in the social environment.
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 has ultimate ownership for risk and
controls, including read across assessments of identified issues,
Report of the Directors

46 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

events and near misses, and the delivery of good conduct
outcomes. It 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 provides subject matter expertise,
advice, guidance and review and challenge of the first line of
defence activities to help ensure that risk management decisions
and actions are appropriate,within risk appetite and support the
delivery of good conduct outcomes.
– The third line of defence is our Internal Audit function, which
provides independent assurance that our risk management
approach, governance and internal control processes are designed
and operating effectively.
Risk and Compliance
Our Risk and Compliance functions are responsible for the local
group’s risk management framework. This responsibility includes
establishing local 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 business lines, 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 the Chief Risk
Officer.
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 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 local group, and provides confidence
to regulators on the local 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 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 informed by 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 local group 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.
During 2023, we conducted a range of internal stress tests and
sensitivity analysis. These included stress tests to assess shocks on
the property market, shocks on certain sectors , geopolitical crises,
climate stress tests, cyber attacks and other operational risk events
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 local group’s capital
adequacy and liquidity. Our balance sheet and capital adequacy
remain resilient based on internal stress test outcomes.
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 HSBC 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 2023, HSBC continued to develop its
recovery and resolution capabilities in line with both the Single
Resolution Board and Bank of England resolvability requirements. The
bank is committed to further developing its recovery and resolution
capabilities to ensure it meets current and future requirements as
well as integrates the evolution of its business.
Key developments in 2023
We actively managed the risks related to macroeconomic
uncertainties including the evolution of geopolitical environment
inflation, higher interest rates, slower GDP growth and internal
events. In addition, we enhanced our risk management in the
following areas:
– The enhancement of the climate risk programme to embed
climate considerations throughout the firm, including updating the
scope of the HSBC programme to cover all risk types, expanding
the scope of climate related training and developing new climate
risk metrics to monitor and manage exposures. A dedicated
governance organisation for Climate and ESG risks was also
implemented.
– The development of emerging risk identification and management,
to support our analysis of risks,
– By strengthening the third party risk policy and processes to
improve control and oversight of our material third parties that are
key to maintaining our operational resilience, and to meet new and
evolving regulatory requirements.
– We consolidated various financial crime policies into a single
financial crime policy driven by simplification and consistency. The
bank also deployed industry leading technology and advanced
analytics capabilities to improve its ability to identify suspicious
activities and prevent financial crime.
– Developing a new policy to enhance the risk identification process
including how these identified risks link into our capital planning.
– Securing the allocation of additional Treasury Risk resources from
our parent company to enhance second line oversight of capital
and liquidity planning
Key Risks
The most important types of financial risk comprise credit risk, market
risk and liquidity risk. Owing to the insurance operation, 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

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 47

procedures dedicated to control and monitor the risk arising from all
such activities. Within the overall framework of the local 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 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 and a
portfolio 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.
Insurance risk
HSBC Malta operates an integrated bancassurance model which
provides wealth and protection insurance products to customers with
whom the local group has a banking relationship. Insurance products
are sold by the Wealth and Personal Banking business through the
bank’s branches. The insurance contracts HSBC Malta sells relate to
the underlying needs of the local group’s banking customers, which it
can identify from its point-of-sale contacts and customer knowledge.
Where HSBC Life Assurance (Malta) does not have the risk appetite
or operational scale to be an effective manufacturer, a handful of
leading external insurance companies are engaged in order to provide
insurance products to the local group’s customers through its banking
network. The local subsidiary sets its own control procedures in
addition to complying with guidelines issued by the HSBC Group
Insurance. Country level oversight is exercised by the subsidiary’s
local Risk Management Meeting.
In addition, HSBC Life Assurance (Malta)’s Asset and Liabilities
Committee monitors and reviews the matching over time of the
expected cash flows of insurance assets and liabilities. All insurance
products, whether manufactured internally or by a third party, are
subjected to a product approval process prior to introduction.
HSBC Life Assurance (Malta) is exposed to lapse risk, particularly to a
one-event mass lapse. Lapses on the Protection business could be
driven by the inflationary environment thus impacting HSBC Life
Assurance(Malta) customer’s behaviour toward allocating wealth
toward insurance. The Unit-linked book is more sensitive to the
volatility of the market and low return. Mass lapses on this profitable
business would reduce the expected profit.
Execution risk
In order to deliver our strategic objectives and meet mandatory
regulatory requirements we maintain a strong focus on change
execution risk. The scale, complexity and pace of regulatory change
elevates our level of change execution risk.
Data risk
We use multiple systems and growing quantities of data to support
our customers. Risks arise if data is incorrect, unavailable, misused, or
unprotected. Along with other Banks and Financial Institutions, we are
subject to external regulatory obligations and laws that cover data,
such as the Basel Committee on Banking Supervision’s 239
guidelines and the General Data Protection Regulation (‘GDPR’).
Risks arising from the receipt of services
from third parties
HSBC Bank Malta p.l.c. utilises a number of internal and external third
parties for the provision of a range of services, some in common with
other Financial Institutions. Risks arising from the use of third-party
service providers may be less transparent and therefore more
challenging to manage or influence.
We have appropriate risk management policies, processes, controls
and practices over the selection, governance and oversight of third
parties and their supply chain particularly for key activities that could
impact upon our operational resilience, including (i) internal third
parties which are located in different continents, and (ii) Cloud
Outsourcing, with even greater focus in the context of a
strengthening regulatory environment.
Any deficiency in the management of risks arising from the use of
third parties could affect our ability to meet strategic, regulatory or
client expectations.
Externally driven risks
Geopolitical and macroeconomic risks
The Russia-Ukraine war continues to have far-reaching geopolitical
and economic implications. There is also uncertainty about the scope,
duration and potential escalation of the Israel-Hamas war. HSBC is
monitoring the direct and indirect impacts of of these 2 conflicts. The
bank continues to respond to evolving economic sanctions and trade
restrictions, in particular significant sanctions and trade restrictions
imposed against Russia. Such sanctions and restrictions have
targeted certain Russian government officials, politically exposed
persons, business, individual people, Russian oil imports, energy
products, financial institutions, other major companies and sanctions
evasion networks. Some more general restrictions and bans have
been also put in place on applicable investment, export, and import.
Further sanctions, trade restrictions and Russian countermeasures
may adversely impact HSBC Bank Malta p.l.c., by creating regulatory,
and reputational risks.
Global commodity markets were impacted by geopolitical risks-
including the Russia-Ukraine and Israel-Hamas wars, which fuelled
concerns about supply disruptions, although weak economic activity
in China and Europe dampened demand growth. The reduction in
global inflation rates prompted developed market central banks to
pause monetary policy tightening, from the third quarter of 2023. A
decrease in the inflation trend is now clearly visible across most major
economies and interest rates are forecast to fall through 2024,
although are expected to remain materially higher than in recent
years. Locally, during 2023, the government continued to step in to
reduce the impact of the increased price of energy on local
consumers and the economy.
Report of the Directors

48 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Mitigating actions
– We closely monitor geopolitical and economic developments in
key markets and sectors and undertake scenario analysis where
appropriate. This helps us to take portfolio actions where
necessary, including enhanced monitoring, amending our risk
appetite and/or reducing limits and exposures.
– We regularly review key portfolios to help ensure that individual
customer or portfolio risks are understood and our ability to
manage the level of facilities offered through any downturn is
appropriate.
– We continue to invest in transforming how software solutions are
developed, delivered and maintained to improve system resilience.
HSBC Bank Malta p.l.c. continues to build security into its
software development lifecycle and improve its testing processes
and tools.
– We continue to upgrade many of our IT systems, simplify its
service provision and replace older IT infrastructure and
applications.
– The HSBC Cyber intelligence and threat analysis team continually
evaluates threat levels for the most prevalent cyber-attack types
and their potential outcomes. To further protect the bank and its
customers and help ensure the safe expansion of our global
businesses, HSBC Malta continues to strengthen its controls to
help reduce the likelihood and impact of advanced malware, data
leakage, exposure through third parties and security vulnerabilities.
– We continue to enhance cybersecurity capabilities, including Cloud
security, identity and access management, metrics and data
analytics, and third-party security reviews. An important part of its
defence strategy is conducting cybersecurity training and
awareness campaigns so that employees remain aware of
cybersecurity issues and know how to report incidents.
Climate Risk and ESG Risks
Climate-related risks
We are subject to financial and non-financial risks associated with
environmental, social and governance (‘ESG’) related matters. Our
current areas of focus are climate risk, nature-related and human
rights risks. These can impact us both directly and indirectly through
our customers.
The assessment of climate risks covers three distinct time periods,
comprising: short term, which is up to 2025; medium term, which is
between 2026 and 2035; and long term, which is between 2036 and
2050.
The following risks resulting from climate change and the move to a
net zero economy may be faced:
– Credit losses, if customers business models fails to align to a net
zero economy or if its customers face disruption to their
operations or deterioration to their assets as a result of extreme
weather.
– Impacts from physical risk on HSBC Bank Malta p.l.c.’s own
operations, owing to the increase in frequency and severity of
weather events and chronic shifts in weather patterns, which
could affect its ability to conduct its day-to-day operations.
– Increased reputational, legal, and regulatory risk if the bank fails to
make sufficient progress towards its net zero ambition, if the bank
fails to meet evolving regulatory expectations and requirements on
climate risk management, or if HSBC knowingly or unknowingly
makes inaccurate, unclear, misleading, or unsubstantiated claims
regarding sustainability to stakeholders.
– Financial reporting risk in relation to ESG disclosures, as any data,
methodologies and standards used may evolve over time in line
with market practice, regulation or developments in climate
science. Any changes could result in revisions to HSBC internal
frameworks and reported data and could mean that reported
figures are not reconcilable or comparable year on year.
– Model risk, as the uncertain impacts of climate change and data
and methodology limitations present challenges to creating reliable
and accurate model outputs.
– Climate related litigation risks.
HSBC Bank Malta p.l.c. may also be exposed to nature related risks
beyond climate change, so HSBC continues to engage with investors,
regulators and customers on nature-related risks to evolve its
approach and understand best practice risk mitigation. Since 2021 the
HSBC Group joined several industry working groups dedicated to
helping in assessing and managing nature-related risks such as the
Taskforce on Nature-related Financial Disclosures (’TNFD’).
Mitigating actions
To enhance the monitoring of Climate and ESG risks, HSBC is
engaged through:
– A dedicated governance forum, responsible for shaping and
overseeing HSBC Bank Malta p.l.c.’s approach and providing
support in managing climate & ESG risks.
– The climate risk programme, which continues to support the
development of climate risk management capabilities across four
key pillars: governance and risk appetite, risk management, stress
testing & scenario analysis, and disclosures.; in addition, the
approach and mitigation to the risk of greenwashing continue to be
enhanced.
– During 2023, we have been monitoring the exposures of our
customers to ten high risk 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, metals and mining,
transportation/airlines/shipping, agriculture, manufacturing and real
estate. The first six sectors were incorporated within Risk Appetite
Statement in 2022, with the remaining four sectors being included
in 2023.
– The Climate Risk specific governance forum met six times during
2023, which monitored progress against climate and
environmental risks. Progress is also reported to the Risk
Management Meeting, Risk Committee, and the Board.
– Climate stress tests and scenarios are being used to further
improve our understanding of our risk exposures for use in risk
management and business decision making.
– We continue to engage with our customers, proactively on the
management of climate risks as transition risks are assessed and
monitored by the client facing and the credit teams for high
transition risk sectors.
– We will continue to enhance our climate risk management
capabilities throughout 2024, this will include rollout of
environmental risk framework, consideration of nature related risks
within our business and work related to the EU’s corporate
sustainability reporting directive.
Integrating climate into enterprise-wide risk management
Our approach to climate risk management is aligned to our Group-
wide risk management framework and three lines 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.
Financial crime risk
T he risk of financial crime remains intrinsically high and requires
continuous work to strengthen the system for preventing, detecting
and reporting criminal activities. We believe that the enforcement of
high compliance standards is a competitive advantage, and is
essential to our success and that of the jurisdiction. The management
of Financial Crime Risk is a key area of focus at the HSBC Bank Malta
p.l.c. Risk Management Meeting, as well as at the Board and Risk
Committee.
HSBC Bank Malta p.l.c. continues to support its clients in the context
of complex geopolitical, socio-economic and technological challenges,
including the implementation of an unprecedented volume and
diverse set of sanctions, notably as a result of the Russia-Ukraine war.
The bank continues to monitor direct and indirect impacts of the
Russia-Ukraine war and continues to respond to new sanctions
regulations, taking into account the challenges that arise in

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 49

implementing the complex, new and ambiguous aspects of some of
these regulations.
Mitigating actions
We continue to manage sanctions and trade restrictions through the
use of, and enhancements to, existing controls.
– The bank also continues to develop its fraud controls, and invest in
capabilities to fight financial crime through the application of
advanced analytics and artificial intelligence.
– The bank is looking at the impact of a rapidly changing payments
ecosystem, as well as risks associated with direct and indirect
exposure to digital assets and currencies, to ensure its financial
crime controls remain appropriate.
– The bank engages with regulators, policymakers and relevant
international bodies, seeking to address data privacy challenges
through international standards, guidance and legislation.
Interest rate increases
The combined pressure of inflation and interest rate rises may lead to
affordability pressures for customers and their ability to repay debt.
These risks are considered during underwriting and estimated credit
loss assessment.
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. 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 daily.
Branches and offices
A list of branches and offices is found on page 188.
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 cent 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.
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 which
may result in restrictions on the transfer of securities and/or voting
rights and agreements pertaining to changes in control of the bank did
not apply to the bank as at 31 December 2023.
Shareholder register information
pursuant to Banking rule 7 –
Appendix 1

Directors’ interest in the share capital of the bank
| At 31 Dec 2023
| 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.
Through an off-exchange transaction related to release of estate, on
11 January 2024 Michel Cordina acquired an additional 72,250 shares.
The transaction has been duly notified to the MFSA and published on
the bank’s website in terms of the Persons Discharging Managerial
Responsibilities requirements. The total shares held by Michel
Cordina as at 31 January 2024 is 76,448 shares.
Shareholders holding five per cent (5%) or more of the share capital
or of the voting rights of the bank at 31 January 2024: HSBC
Continental Europe. 70.03%.
No connectivity of holders with direct and indirect shareholding of 5%
or more of the bank’s share capital or of the voting rights have been
identified by the bank.
Number of shareholders at 31 January 2024:
One class of shares 8,968 shareholders (All shares have equal voting
rights).
Report of the Directors

50 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Number of shareholders analysed by range
| At 31 Jan 2024
| Total shareholders | Shares
Range of shareholding |  |
1 – 500 | 1,503 | 445,072
501 – 1,000 | 1,125 | 846,151
1,001 – 5,000 | 3,755 | 9,570,372
5,001 and over | 2,585 | 349,444,504
Total shareholding | 8,968 | 360,306,099

Standard licence conditions and
Investment Services Rules applicable
under the Investment Services Act,
1994
In accordance with the Malta Financial Services Authority (‘MFSA’)
Investment Services Rules 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 Depositaries (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 (resigned 30 April 2023)
Geoffrey Fichte (appointed 1 May 2023)
Henri Mizzi (resigned on 31 October 2023)
Maria Micallef
Yiannos Michaelides
Michel Cordina
Ingrid Azzopardi
Manfred Galdes
Terecina Kwong
Alexiei Dingli (appointed 24 January 2024)

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
Geoffrey Fichte | 1 Executive Directorship and 2 Non-Executive directorships all within the same Group
Michel Cordina | 1 Executive Directorship
Terecina Kwong | 1 Executive Directorship and 1 Non-Executive Directorship
Ingrid Azzopardi | 1 Non-Executive Directorship
Maria Micallef | 1 Executive Directorship and 2 Non-Executive Directorships
Yiannos Michaelides | 1 Non-Executive Directorship
Manfred Galdes | 2 Executive Directorships within the same Group and 2 Non-Executive Directorships.
Alexiei Dingli | 1 Executive Directorship and 2 Non-Executive Directorships.

None of the Directors required approval from the Competent
Authority regarding the number of directorships held.
Board Fit and Proper Policy
The Board’s Fit and Proper Policy was last reviewed and approved by
the Board in July 2023. This policy includes principles on the
selection, appointment, monitoring, re-appointment of and succession
planning of members of the Board of Directors and Key Function
Holders. The policy also refers and describes the criteria to be used in
the assessment for the Board members and Key Function Holders. It
also includes the Board diversity and inclusion policy and the induction
and training policy.
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 thereon. 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 guidance on the topic. When
carrying out the fit and proper assessment, consideration is also given
to the Board’s Diversity Policy and to the Board’s Conflicts of Interest
Policy. Before appointment, the potential member undergoes
thorough vetting and is required to submit a number of supporting
documents. Any appointment is subject to regulatory approval.

Knowledge, Skills and Expertise of the Board Members
John Bonello | Accountancy and Audit
Geoffrey Fichte | Banking and Finance
Michel Cordina | Banking and Finance
Terecina Kwong | Banking and Finance
Ingrid Azzopardi | Accountancy and Audit
Maria Micallef | Accountancy and Audit
Alexiei Dingli | Information Technology & Artificial Intelligence
Manfred Galdes | Financial and Anti-Money Laundering Legislation

In terms of the Board Succession Policy, the Board acknowledges
that robust 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.
The objective of the Board Diversity and Inclusion Policy is to ensure
diversity and inclusion is taken into consideration in the succession
planning, selection, nomination, operation, and evaluation of the
Board. Consideration is given to a wide range of backgrounds
including the gender, ethnicity, age, geographical, educational and
professional backgrounds of candidates.
The bank remains committed to an inclusive culture in the Boardroom
where Directors believe that their views are heard, their concerns are
attended to and they serve in an environment where bias,
discrimination and harassment on any matter are not tolerated.
The bank’s diversity target is of 33% female share of Board Directors
(presently there are three female and five male Directors on the Board
and currently awaiting regulatory approval for the formal appointment
of the ninth Board member). The bank has achieved this target and
aspires to achieve gender parity over the long term. while abiding by
the principle of meritocracy.
Details regarding the bank’s Risk Committee are included under
Principle 4 of the Statement of Compliance with the Code of Principle
of Good Corporate Governance.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 51

Executive Committee and Head of
Internal Audit
As at 31 December 2023, the bank’s Executive Committee of the
local group was composed of the following:

Geoffrey Fichte | Chief Executive Officer
Svetlana Maslova | Chief Operating Officer
Charlotte Cilia | Chief Financial Officer
Muriel Rutland | Designate Head of Wealth and Personal Banking
Michel Cordina | Head of Business Development
Jesmond Apap | Head of Global Markets
David Perotti | Head of Human Resources
Joyce Grech | Head of Commercial Banking
Joseph Sammut | General Counsel
Steven Beddow | Chief Risk Officer
Mandy Falzon | Chief Compliance Officer
Carine Arpa | Head of Communications
Paula Mamo | 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 21 February 2024 by
John Bonello (Chairman) and Geoffrey Fichte (Chief Executive Officer) as
per the Directors' Declaration on ESEF Annual Financial Report submitted
in conjunction with the Annual Report and Accounts 2023.
Report of the Directors

52 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 2023 are included in the Annual Report 2023, 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 21 February 2024 by John Bonello (Chairman) and Geoffrey Fichte (Chief Executive
Officer) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Accounts 2023.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 53

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 its 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 how it has complied 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 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. The criteria considered when carrying out the
individual fit and proper assessment relate to time commitment,
knowledge, skills and experience, independence and reputation,
honesty and integrity. Directors, individually and collectively, are
deemed to be 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.
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.
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 and the Remuneration and Nomination 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% of the Ordinary Share Capital is entitled to appoint one Director
for each 11% 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% of the ordinary share capital participate in the election of the
remaining three Directors. The largest single shareholder (subject to a
minimum 33% 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. The Chairman sets the
meeting agenda and ensures that decisions of the Board are taken on
a sound and well-informed basis. The Chairman ensures that the
Directors receive precise, timely and objective information and at the
same time ensures effective communication with shareholders.
During Board meetings, the Chairman 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.
Statement of compliance with the Code of Principles of Good Corporate Governance

54 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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. The Chief Executive
Officer develops, drives and delivers performance within strategic
goals, commercial objectives and business plans agreed by the
Board. The Chief Executive Office is responsible for executing
strategy and implementing plans. The Chief Executive Office
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. The Chief Executive Office
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.
The Chief Executive Office 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.
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 2023, the Board was composed of a Non-Executive Chairman,
two Executive Directors and six Non-Executive Directors (five Non-
Executive Directors following Henri Mizzi’s resignation, until his
replacement is appointed). 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 appointed Directors.
Apart from the minimum time commitment expected to be dedicated
to the bank being stipulated in the letter of appointment, each
director annually confirms that he/she is able to commit sufficient
time to effectively fulfill the responsibilities as a Director of the bank.
In accordance with the Code Provision 3.2, the independent Non-
Executive Directors as at 31 December 2023 were the following:
John Bonello, Ingrid Azzopardi, Yiannos Michaelides, Manfred Galdes
and Maria Micallef.
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 Manfred Galdes is a
partner in a firm which has provided consultancy services to the bank
from time-to-time does not influence this Director’s objective and
balanced judgement or in any way reduce his ability to take decisions
independently. Furthermore, this has been recorded in the Board’s
Conflict of Interest Register together with the relevant controls that
will be put in place.
In accordance with Code Provision 3.2.1, the Board had decided that
the employment of Terecina Kwong with the Group rendered her
non-independent from the bank. This did not however, in any manner,
detract from this Director’s ability to maintain independence of free
judgement and character at all times. She was deemed able to make
her own sound, objective judgement and independent decisions
when performing her 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 and reviews the bank’s strategy, major operational
and financial plans, policies and business plans and performance
objectives. Strategy is discussed on a regular basis at Board
meetings. The Board of Directors monitors the implementation by
management of strategy and corporate performance 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, after considering
senior management and the Chief Risk Officer advice, 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, 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 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 Fit and Proper Policy for Board Members
and Key Function Holders, which includes a succession policy. The

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 55

Board has also reviewed and approved a succession plan for the
future composition of the Board.
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.
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 always maintained at the highest level. 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 and
disclosures 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 financial resource 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 always adhered to 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 2023 and was composed of
Ingrid Azzopardi as Chairperson, Maria Micallef as Member and John
Bonello as interim Member. During the financial year ended
31 December 2023, Henri Mizzi relinquished his position as Director
and Member of the Committee with effect from 31 October 2023. In
this respect, the vacant position on the Audit Committee has been
temporarily filled by John Bonello, until Henri Mizzi’s replacement is
announced.

Attendance at Audit Committee meetings
| Attended
Ingrid Azzopardi | 6 out of 6
Maria Micallef | 6 out of 6
Henri Mizzi (resigned 31 October 2023) | 5 out of 5
John Bonello (as interim member) | 1 out of 1

During the year, regular informal meetings were held between the
Chairperson/Members of this Committee and Members of Senior
Management especially the Head of Internal Audit, the Chief Financial
Officer and the external auditors.
Senior Managers of the bank are invited to attend any of the Audit
Committee’s meetings as directed by the Committee’s Chairperson.
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 always has a right
of direct access to the Chairperson of the Committee.
In terms of Capital Markets Rule 5.117, the bank has established and
maintained an Audit Committee that is composed of three non-
executive Directors, all of whom have been deemed to be
independent. Ingrid Azzopardi was appointed by the Board as the
Chairperson of the Committee. She is independent and competent in
accounting and/or auditing on the basis that she is a Certified Public
Accountant and Auditor and a Fellow of the Malta Institute of
Accountants, and also a Member of the Institute of Internal Auditors.
In terms of Capital Markets Rule 5.127.5, 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 compliance risk and the bank’s
relationship with Regulators.
Statement of compliance with the Code of Principles of Good Corporate Governance

56 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

The Committee is empowered to review whether prices of liabilities
and assets offered to clients take full account of the 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 six times during 2023 and was composed of
Manfred Galdes as Chairman, and Ingrid Azzopardi and Yiannos
Michaelides as Members.

Attendance at Risk Committee meetings
| Attended
Manfred Galdes | 6 out of 6
Ingrid Azzopardi | 6 out of 6
Yiannos Michaelides | 6 out of 6

During the year, regular informal meetings were held between the
Chairperson/Members of this Committee and Members of Senior
Management especially the Head of Internal Audit, the Chief Risk
Officer, the Chief Compliance Officer and the external auditors.
Senior managers of the bank 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 2023 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
assisting the bank’s Chairman in keeping the composition of the
Board and its committees under review and to lead the process for
nominations to the Board and its committees. It oversees a
continuous and proactive process for planning and assessment of
candidates to ensure plans are in place for the orderly succession for
executive and non-executive directors and other senior appointments
within the Company and its subsidiaries. In so doing, the Committee
reviews the structure and composition of the Board and its
committees and makes recommendations to the Board on
appointments based on merit and against objective criteria,
promoting diversity of gender, social and ethnic backgrounds,
cognitive and personal strengths. This, bearing in mind the target for
the representation of the underrepresented gender in 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.
The Committee assesses the knowledge, skills and experience of
individual members of the Board and of the Board collectively at least
on an annual basis, and report to the Board accordingly. The suitability
of key function holders is also carried out at least annually. The
process of the fit and proper assessment exercises for both the
Board and Key Function Holders is documented within the bank’s Fit
and Proper Policy, which is reviewed annually by RemNom and the
Board.
The Committee also assess the independence of the non-executive
directors and reviews and monitors the training and continuous
professional development of directors.
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. For the attendance details please refer to
the Remuneration report on page 62.
Time commitment is also considered when carrying out the fit and
proper assessment of the Board members. Furthermore, each
Director is requested to confirm his commitment on an annual basis
through a declaration.
Executive Committee (‘ExCo’)
This Committee is a management meeting and its purpose is to
support the bank’s Chief Executive Officer (‘CEO’) in the performance
of the CEO’s duties and exercise of powers, authorities and
discretions in relation to the management and day-to-day running of
the bank and its subsidiaries and to support the CEO in the discharge
of responsibilities to the Board. This Committee is designed to
strengthen decision making by ensuring collective input to decisions.
The members of the Committee have individual responsibility for the
development and implementation of the strategy for the business or
function they represent in accordance with their role profiles and
powers delegated to them, directly or indirectly by the CEO and
subject to any limitations on their authority.
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 is
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
Chairman may determine. However, it is expected that the
Committee formally meets at least six 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 nine 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. During 2023, all the meetings were chaired by the Chief
Risk Officer. 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 This governance forum is responsible for all risks in all
businesses, functions and subsidiaries under the ownership of the
bank, including inter alia Treasury Risk, Strategic Risk, Credit Risk,
Market Risk, Resilience Risk (including information technology, cyber
security and third party risk), Financial Crime Risk, Regulatory
Compliance Risk, People Risk, Legal Risk, Model Risk, and Financial
Reporting and Tax Risk. The RMM is also responsible for the setting
and monitoring of a Risk Appetite Framework for Risk Committee 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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 57

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 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 an
efficient deployment of the bank’s Asset and Liability Management
strategy. 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
Global Payments Services. ALCO, met eleven times in 2023 and is
chaired by the Chief Financial Officer and deputised by the Chief
Executive Officer.
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
twelve times: nine were formal Board meetings and three were for
structured training purposes.
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, giving enough time for Directors to review
the material.
During the meetings, Board Members are given the 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 in 2023
| Attended
John Bonello | 9 out of 9
Simon Vaughan Johnson | 5 out of 5
Geoffrey Fichte | 4 out of 4
Michel Cordina | 9 out of 9
Yiannos Michaelides | 7 out of 9
Manfred Galdes | 9 out of 9
Ingrid Azzopardi | 9 out of 9
Henri Mizzi | 9 out of 9
Maria Micallef | 9 out of 9
Terecina Kwong | 6 out of 9

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 members of senior management,
including the Chief Executive Officer. 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. Directors
are also given the opportunity to request further training on specific
topics.
A structured Board training and development programme is organised
for the Directors and facilitated by members of ExCo. Training
organised by external parties is also provided. 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 related to interest
rates risk, cybersecurity, Corporate Sustainability Reporting Directive
(CSRD) and capital requirements for the bank. Directors also
participate in the Group’s mandatory training, which covers health
safety and wellbeing, risk management, cybersecurity, sustainability,
financial crime compliance topics, data literacy, workplace
harassment and data privacy.
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 advising the Board
through the Chairman on all governance matters and for adherence to
Board procedures as well as for effective information flows within the
Board, its Committees and with senior management.
The Chairman of the Board and Chairpersons of the Audit and Risk
Committees attend a number of Chairpersons’ Fora organised
throughout the year by the Group. In 2023, Group also organised a
Chairmen’s Summit, which the bank’s Chairman attended. The
bank’s Audit Committee and Risk Committee Chairpersons also
attended an engagement session together with other HSBC Audit
Committee and Risk Committee Chairpersons. During these
meetings the Directors are updated on the latest topical issues.
The succession plan for senior management is discussed with
RemNom. 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 engagement and morale among the bank’s
personnel.
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 driven
and overseen 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.
Statement of compliance with the Code of Principles of Good Corporate Governance

58 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Principle 8: Committees
Details on the Committees is covered under Principle 4. 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. 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, Board members 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 Directors
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 Social Responsibility
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 the bank’s key stakeholders (i.e. customers, employees, and the
community). In Malta, the bank fulfils the Group’s CS strategy
primarily through its Corporate 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 and education, the environment 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. HSBC
Bank Malta p.l.c. is also one of the founding members of the Malta
ESG Alliance.
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
2023 to drive initiatives aligned with this strategy.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 59

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 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 (‘CEO’) to manage the day-to-day affairs of
the business for which he is 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 Regional and Group functional reporting
and governance is exercised over all IT operations, with
overarching local HBMT Reporting and Governance.
– In order to ensure consistency and benefit from economies of
scale, common Group systems are employed for similar business
processes, wherever practicable.
– Various Controls and Key Controls Indicators are applied in order
to assess and monitor IT Operational and Cyber resilience in order
to assess effectiveness on a regular basis, and, where needed,
define and oversee remediation activities.
– 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 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, using a risk-
based approach. The Head of Internal Audit also reports to the
Audit Committee on matters concerning the operation of the
Internal Audit function, including independence and resourcing and
approval of the Annual Audit Plan.
– 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 independently validates the remediation.
– 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
Statement of compliance with the Code of Principles of Good Corporate Governance

60 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 21 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 46
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 2023, the Annual General Meeting was held on 20 April 2023.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 61

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 overseeing the implementation and operation of the
bank’s remuneration framework. It also assures that the
remuneration framework is aligned with local law, rules or regulations,
as well as with the risk appetite, business strategy, culture and
values, and long-term interests of the bank. The Committee also
seeks to satisfy itself that the remuneration framework is appropriate
to attract, retain and motivate individuals of the quality required to
support the success of the bank. It ensures that the remuneration
policy is consistent with and promotes sound and effective risk
management. The Committee carries out its role in line with The
Code of Principles of Good Corporate Governance, as presented
within Appendix 5.1 to the Capital Markets Rules and Banking Rule 21
(BR21/2022) – Remuneration Policies and Practices – issued by the
Malta Financial Services Authority.
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 Financial Resource 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 meetings 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 Committee met seven times during 2023 and was composed of
Maria Micallef as Chairperson, John Bonello as Member and Manfred
Galdes as interim Member. During the financial year ended
31 December 2023, Henri Mizzi relinquished his position as Director
and Member of the Committee with effect from 31 October 2023. In
this respect, the vacant position on the RemNom Committee has
been temporarily filled by Manfred Galdes, until Henri Mizzi’s
replacement is announced.

Attendance at Remuneration and Nomination Committee meetings
| Attended
Maria Micallef | 7 out of 7
John Bonello | 7 out of 7
Henri Mizzi | 6 out of 6
Manfred Galdes (as interim member) | 1 out of 1

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 2023 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, regardless of gender, ethnicity, age,
disability or any other factor unrelated to performance or experience
in line with the Bank’s Diversity and Inclusion Policy. The aim is to
retain those 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. Accordingly,
the classification of Identified Staff within the bank’s Remuneration
Policy is aligned with this regulation.
During 2023, the bank’s Remuneration Policy has been updated to
incorporate further detail in respect of the following three areas in
order to better align with regulatory requirements:
– Policy in respect of disclosures submitted to the Authority in
relation to high earners, Identified Staff, gender pay gap analysis
and remediation;
– Framework for the determination and approval of severance pay
for Identified Staff; and
– Independent review of the design of the Remuneration Policy.
In determining remuneration levels for 2023, 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 the following:
– 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 and 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;
– A global recognition program, where the 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
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
Remuneration Report

62 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

values rating which directly influences their overall performance
rating, and is therefore considered for their variable pay
determinations.
– For Executive Directors, Senior Management 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/investor-relations
The bank’s reward strategy
To attract, retain and motivate the very best people, HSBC’s reward
package comprises three key elements:
– Fixed Remuneration;
– Benefits; and
– 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 and may attract
consequence.
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 Executive Director or Senior Management positions. 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 in HSBC Bank Holdings plc.
| 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, is 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 Financial Resource Plan. Through the

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 63

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.
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 award 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 Anti-Money Laundering (‘AML’) and sanctions compliance programme.
|  | – 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
M arkets Rules
A Directors’ Remuneration Policy was approved by the shareholders
at the Annual General Meeting of the Company held o n 27 November
2020. The Resolution relating to the Directors’ Remuneration Policy
had been passed as follows:

Those in favour | 280,826,046 votes (99.82%)
Those against | 255,305 votes (0.09%)
Abstentions | 257,296 votes (0.09%)

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.
The Directors’ Remuneration Policy shall be presented for approval at
the next General Meeting (Ordinary Resolution - Special Business).
The proposed changes relate to the alignment of the Directors’
Remuneration Policy in respect of Variable Pay. Specifically, the
applicable threshold for Variable Pay of Identified Staff are within the
“Executive Directors’ Reward Package as Salaried Employees”
section, was lowered from €100,000 to €50,000. In this respect
where Variable Pay for Identified Staff exceeds €50,000 or for lower
values where Variable Pay is greater than 33% of Total
Compensation, a minimum of 50% of the awards are made in HSBC
Holdings plc shares.”
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 and where necessary attracts consequence.
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
clawback 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.
Remuneration Report

64 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Remuneration of Executive Directors for the year ended
31 December 2023:

| Geoffrey Fichte* | Simon Vaughan Johnson** | Michel Cordina
| 2023 | 2023 | 2022 | 2023 | 2022
| € | € | € | € | €
Fixed pay | 310,163 | 127,135 | 452,998 | 150,804 | 147,467
Variable pay: |  |  |  |  |
– Immediate Cash | 74,986 | — | 66,932 | 50,000 | 43,000
– Immediate Shares* | 74,986 | — | 66,932 | — | —
– Deferred Cash | 49,991 | — | 44,621 | — | —
– Deferred Shares* | 49,991 | — | 44,621 | — | —
Benefits | 20,966 | 74,263 | 124,542 | 13,158 | 12,253
Aggregate | 581,083 | 201,398 | 800,646 | 213,962 | 202,720
Effective period | 01/05/23 - 31/12/23 | 01/01/23- 30/04/23 | 01/01/22- 31/12/22 | 01/01/23- 31/12/23 | 01/01/22- 31/12/22

* Geoffrey Fichte was appointed as an Executive Director and Chief
Executive Officer of the bank during the financial year ended
31 December 2023. In this respect, no comparative figures are being
shown in relation to the financial year ended 31 December 2022.
** Simon Vaughan Johnson retired with effect from 1 May 2023. In this
respect, the figures in the table above reflect the remuneration until
that date.
** No shares were awarded to Simon Vaughan Johnson for performance
year 2023. The value of shares awarded to Geoffrey Fichte amounting
to €124,977, also relate to performance year 2023. The number of
shares to be awarded in this respect will be formally communicated on
1 March 2024 and determined on the share price as at that date.
The number of shares awarded during 2023 in relation to performance
year 2022 are disclosed in a subsequent table ‘Share Awards and
Share Options awarded in 2023.
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 three most recent
financial years.

| 2022/ 2023 | 2021/ 2022 | 2020/ 2021
Percentage annual change in remuneration 1 |  |  |
Simon Vaughan Johnson 2 | (43)% | (1)% | 9%
Michel Cordina 3 | 6% | 4% | 10%
Percentage annual change of the bank’s performance 4 | 144% | 76% | 47%
Percentage annual change of the average remuneration of the bank’s employees, on a full-time equivalent basis 5 | 8% | 6% | 5%

1 Executive Directors who were appointed after 1 January 2023 are not
included in the table above. In this respect, information about Geoffrey
Fichte, who was appointed as the Chief Executive Officer and an
Executive Director of the bank with effect from 1 May 2023, is not
presented in the table above.
2 Simon Vaughan Johnson was appointed as an Executive Director part
way during 2020 and retired with effect from 1 May 2023. In this
respect, for the purposes of the table above, the aggregate
remuneration paid to him in respect of the financial years ended
31 December 2020 and 31 December 2023 was annualised to allow for
a meaningful comparison. However, given that Simon Vaughan
Johnson resigned part way throughout the year, he was not awarded
variable pay and, as such, the annualisation of the Total Compensation
for 2023 is not directly comparable to the Total Compensation for 2022.
3 The aggregate remuneration awarded in 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.
4 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 is
deemed by management to be the most appropriate basis for
measuring performance.
5 In order to allow for a meaningful comparison, new joiners employed
during the second year of each two-year comparative period are
excluded from the calculation; the remuneration paid to terminated
employees during the second year of each two-year comparative
period is being annualised to enable comparison with the annual
remuneration paid in the first year; and the remuneration paid to new
joiners employed during the first year of each two-year comparative
period is annualised to enable comparison with the annual
remuneration paid in the second year. The annual remuneration paid to
employees who were in employment for the full calendar years across
each two-year comparative period is compared as normal.
Shares and Share Options awarded in
2023

| Grant Date | Share Value € | Number of Shares | Performance Period
Immediate Shares | 01/03/2023 | 66,932 | 8,948 | 2022
Deferred Shares* | 01/03/2023 | 44,621 | 6,913 | 2022

* 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 2028.
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 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 the Chief Executive Officer 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 Geoffrey Fichte during 2023, which amounts
to 81% of his fixed pay (excluding benefits), is lower than the 100%
fixed pay threshold. In addition, 50% of the variable remuneration is
made in shares in line with the bank’s policy and the HSBC Group
deferral requirements applied for all variable pay awards are explained
in the table below.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 65

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 33% of the Total Compensation. | 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 Geoffrey Fichte represents 40% of the
variable pay component and 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. No use
has been made of provisions allowing the bank to reclaim variable
remuneration during the financial year ended 31 December 2023. This
mechanism ensures that the remuneration of the bank’s Executive
Directors 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 applied in respect of
Geoffrey Fichte. 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. Michel Cordina’s targets comprised customer
engagement and retention; the strengthening of key customer
relationships, mainly in the corporate segment; engagement with
other key stakeholders and regulators; and ensuring adherence to risk
management and compliance measures. Michel Cordina is also
directly responsible for the Corporate Sustainability team and is the
Deputy Chair of the HSBC Malta Foundation. In line with the bank’s
Remuneration Policy, the percentage of variable pay received by
Michel Cordina, which amounts to approximately 33% 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 2023.
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 for reasonable and documented
expenses incurred in performing their role. 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 at least one month’s prior written
notice, where possible, 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. The aggregate Directors’
fee pool, as approved by a simple majority at the last Annual General
Meeting 20 April 2023 by way of Ordinary Resolution – Special
Business, amounted to €480,000. No change will be proposed at the
forthcoming Annual General meeting to this aggregate amount. None
of the said Directors received any remuneration from HSBC Life
Assurance (Malta) Ltd, HSBC Global Asset Management (Malta)
Limited, 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 2023 and 2022 were as follows:

| 2023 Fees | 2022 Fees
| € | €
John Bonello | 75,761 | 74,400
Andrew Muscat | N/A | 13,024
Sue Vella | N/A | 42,900
Yiannos Michaelides | 39,600 | 39,600
Ingrid Azzopardi | 59,700 | 59,700
Manfred Galdes | 50,916 | 50,400
Henri Mizzi | 38,000 | 8,527
Maria Micallef | 46,800 | 3,900
Total | 310,777 | 292,451

In terms of the requirements within Appendix 12.1 of the Capital
Markets Rules, the bank is required to disclose the annual change of
remuneration of the Non-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 three
most recent financial years. Fees shown in the above table reflect the
amounts paid from the date of regulatory approval.
Andrew Muscat and Sue Vella have relinquished their positions as
Directors and Members of the Committee with effect from 13 April
2022 and 1 December 2022 respectively. The fees shown in the table
above represent fees paid in respect of the period from the respective
dates when regulatory approval was obtained.
In this respect, Henri Mizzi received €23,996 in fees for his
attendance to Board and Committee meetings covering the period
from the date of the Annual General Meeting held on 13 April 2022,
being the date when he was elected by the shareholders, until
regulatory approval was obtained on 24 October 2022. Similarly, Maria
Micallef received €4,331 in fees for her attendance to Board and
Committee meetings held prior to 1 December 2022, which
represents the date when regulatory approval was obtained. In this
respect Henri Mizzi relinquished his position as Director and Member
of the Committee with effect from 31 October 2023.
The annualisation of fees paid to Henri Mizzi and Maria Micallef in
respect of the financial years ended 31 December 2023 and
31 December 2022 would result in fees which are in line with those
paid in respect of the previous two financial years.
The increase in fees paid to John Bonello and Manfred Galdes in 2023
reflects compensation for the interim attendance to Audit and
RemNom Committe meetings respectively, to fill vacant positions.
For the remaining directors, there was no change in annual fees paid
to Non-Executive Directors in absolute terms over the three most
recent financial years.
There were no new appointments of Non-Executive Directors in 2023.
However, Alexiei Dingli was appointed as a Director on 24 Ja nuary
2024, which represents the date when regulatory approval was
obtained. Fees paid to Alexiei Dingli in respect of his attendance to
Board Meetings held prior to this date amounted to €5,548.
The aggregate amount paid in Directors’ fees in respect of the
financial year ended 31 December 2023 does not exceed the
maximum aggregate amount approved at the last Annual General
Meeting.
Matthew Colebrook, who was 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. He resigned his
directorship on 28 February 2022.
Remuneration Report

66 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Matthew Colebrook was replaced by Terecina Kwong on the Board of
Directors, who was appointed as a Director on 6 December 2022
upon formalisation of regulatory approval. Terecina Kwong is currently
the HSBC Global Chief Operating Officer for retail banking and forms
part of the bank’s Board of Directors.
Neither Matthew Colebrook nor Terecina Kwong received 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 undertakings respectively, taking cognisance of their role
as Non-Executive Directors of the bank. Accordingly, no disclosure in
respect of their remuneration for their 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 2022 was approved at the
Annual General Meeting held on 20 April 2023 with the Resolution
being passed by show of hands. 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
2024 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 Financial Services
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.
Identified Staff include:
– Executive Directors, presented under ‘MB Management function'
in the table below;
– Senior Management, defined as members of the Executive
Committee excluding Executive Directors, and presented under
‘Other senior management’ in the table below; and
– Other employees who are not members of the Executive
Committee but are identified as having a material impact on the
bank’s risk profile, referred to as ‘Other Identified Staff in the table
below.
Accordingly, the figures disclosed in the tables below relating to the
MB Supervisory function also include the remuneration relating to the
Non-Executive Directors disclosed in the 'Information on Directors'
Remuneration in terms of Appendix 12.1 of the Capital Markets
Rules’ within the Remuneration Report.
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 transaction representing
0.5% of the bank’s CET1 capital, are classified as Identified Staff.
Remuneration information for individuals classified as Identified Staff
at the level of subsidiaries is also reflected in the tables below.
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 Executive Directors and Senior Management employed
by the bank, who would similarly be entitled to a notice period 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 Management positions
requires a notice period of up to six months. All Identified Staff are
remunerated less than €1 million per annum.
Remuneration amounts – Identified Staff

Remuneration awarded for the financial year (REM1)
|  |  | MB Supervisory function | MB Management function | Other senior management | Other Identified Staff
1 | Fixed remuneration | Number of Identified Staff | 6 | 2 | 12 | 38
2 | Total fixed remuneration (€000) | 316 | 696 | 1,790 | 2,746
3 | – of which: cash-based (€000) | 316 | 568 | 1,627 | 2,454
EU-5x | – of which: other instruments (€000) | — | 20 | 14 | 38
7 | – of which: other forms (€000) | — | 108 | 149 | 254
9 | Variable remuneration | Number of Identified Staff | 6 | 2 | 12 | 38
10 | Total variable remuneration (€000) | — | 300 | 602 | 405
11 | – of which: cash-based (€000) | — | 125 | 395 | 405
12 | – of which: deferred (€000) | — | 50 | 59 | —
EU-13a | – of which: shares or equivalent ownership interests (€000) | — | 75 | 89 | —
EU-14a | – of which: deferred (€000) | — | 50 | 59 | —
17 | Total remuneration for the year ended 31 December 2023 (€000) | 316 | 996 | 2,392 | 3,151

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, Chief Operating Officer, Chief
Risk Officer and Head of Wealth & Personal Banking, 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.
Alvaro Texieira, Head of Wealth & Personal Banking, has moved to
another international role as from November 2023. Muriel Rutland,
has been appointed Designate Head of Wealth & Personal Banking,
until regulatory approval.
The bank has continued to invest in its people to sharpen their skills
and increase their capabilities. During 2023, the bank continued to
organise programmes around soft and technical skills and launched
specific programmes relating to climate risk and sustainability. Whilst
the Climate Risk Management Capabilities training aims to steward

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 67

and manage the impacts of climate risk on the bank’s customers,
balance sheet and internal operations, the Sustainability Academy
programmes help equip employees to play a leading role in mobilising
the transition to a global net zero economy.
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 2023,
the bank continued participating in Group-led programmes relating to
financial crime, leadership and sustainability through the HSBC
University. These programmes 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 p.l.c. 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.

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 | 555 | 165 | 391 | — | — | 31 | 161 | 40
8 | Cash-based | 219 | 55 | 165 | — | — | — | 54 | —
9 | Shares or equivalent ownership interests | 336 | 110 | 226 | — | — | 31 | 107 | 40
13 | Other senior management | 151 | 23 | 128 | — | — | 5 | 22 | —
14 | Cash-based | 47 | — | 47 | — | — | — | — | —
15 | Shares or equivalent ownership interests | 104 | 23 | 81 | — | — | 5 | 22 | —
18 | Other forms |  |  |  |  |  |  |  |
25 | Total amount as at 31 Dec 2023 | 706 | 188 | 519 | — | — | 36 | 183 | 40

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 Dec 2023
|  | MB Super- visory function | MB Manage- ment function | Total MB | Invest- ment banking | Retail banking | Asset manage- ment | Corpo- rate functions | Independent internal control functions
1 | Total number of Identified Staff | 6 | 2 | 8 | 3 | 4 | 12 | 13 | 14 | 4 | 58
2 | – of which: members of the MB (€000) | 6 | 2 | 8 |  |  |  |  |  |  | 8
3 | – of which: other senior management (€000) |  |  |  | 1 | 2 | — | 6 | 2 | 1 | 12
4 | – of which: other Identified Staff (€000) |  |  |  | 2 | 2 | 12 | 7 | 12 | 3 | 38
5 | Total remuneration of Identified Staff (€000) | 316 | 996 | 1,312 | 295 | 1,123 | 767 | 1,570 | 1,140 | 648 | 6,855
6 | – of which: variable remuneration (€000) | — | 300 | 300 | 59 | 388 | 82 | 235 | 161 | 82 | 1,307
7 | – of which: fixed remuneration (€000) | 316 | 696 | 1,012 | 235 | 735 | 685 | 1,335 | 979 | 566 | 5,548

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 2023 and 2022, 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 2023 and 2022, 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 2023 and 2022, no payments were made to past Directors.
Remuneration Report

68 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Financial statements

Income statements
for the year ended 31 December

|  | Group | Bank
|  | 2023 | 2022 | 2023 | 2022
| Notes | €000 | €000 | €000 | €000
Interest and similar income |  |  |  |  |
– on loans and advances to banks and customers and other financial assets | 7 | 195,855 | 113,947 | 195,855 | 113,947
– on debt and other fixed income instruments | 7 | 18,021 | 2,692 | 18,021 | 2,692
Interest expense | 8 | (18,064) | (8,397) | (18,064) | (8,397)
Net interest income |  | 195,812 | 108,242 | 195,812 | 108,242
Fee income |  | 22,264 | 25,343 | 19,520 | 22,390
Fee expense |  | (2,791) | (3,689) | (2,399) | (3,213)
Net fee income | 9 | 19,473 | 21,654 | 17,121 | 19,177
Insurance revenue |  | 18,289 | 15,565 | — | —
Insurance service expense |  | (7,788) | (5,475) | — | —
Net expenses from reinsurance contracts |  | (5,471) | (4,812) | — | —
Insurance service result | 10 | 5,030 | 5,278 | — | —
Net income/(expense) from assets and liabilities of insurance businesses, measured at fair value through profit or loss | 11 | 48,068 | (74,744) | — | —
Insurance finance (expense)/income | 10 | (44,294) | 76,496 | — | —
Net trading income | 12 | 7,623 | 7,689 | 7,623 | 7,689
Dividend income from subsidiaries | 13 | — | — | 769 | 1,308
Other operating (expense)/income | 14 | (42) | 1,182 | (36) | 1,514
Net operating income before change in expected credit losses and other credit impairment charges |  | 231,670 | 145,797 | 221,289 | 137,930
Change in expected credit losses and other credit impairment charges | 15 | 4,580 | 9,561 | 4,580 | 9,561
Net operating income |  | 236,250 | 155,358 | 225,869 | 147,491
Employee compensation and benefits | 16 | (42,607) | (38,952) | (41,403) | (37,784)
General and administrative expenses | 17 | (51,377) | (52,664) | (48,138) | (49,090)
Depreciation and impairment of property, plant and equipment and right-of-use assets | 32,31 | (3,168) | (3,301) | (3,167) | (3,300)
Amortisation and impairment of intangible assets | 33 | (5,244) | (4,853) | (5,027) | (4,757)
Total operating expenses |  | (102,396) | (99,770) | (97,735) | (94,931)
Profit before tax | 17 | 133,854 | 55,588 | 128,134 | 52,560
Tax expense | 18 | (47,098) | (19,406) | (44,835) | (18,053)
Profit for the year |  | 86,756 | 36,182 | 83,299 | 34,507
Earnings per share | 20 | €0.24 | €0.10 |  |

The notes on pages 75 to 184 are an integral part of these financial statements.
From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative information
in respect of the financial year ended 31 December 2022 has been restated accordingly.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 69

Statements of comprehensive income
for the year ended 31 December

|  | Group | Bank
|  | 2023 | 2022 | 2023 | 2022
| Notes | €000 | €000 | €000 | €000
Profit for the year |  | 86,756 | 36,182 | 83,299 | 34,507
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: |  | 8,697 | (23,177) | 8,697 | (23,177)
– fair value gains/(losses) | 43 | 13,380 | (35,657) | 13,380 | (35,657)
– income taxes | 43 | (4,683) | 12,480 | (4,683) | 12,480
Items that will not be reclassified subsequently to profit or loss: |  |  |  |  |
Properties: |  | 1,643 | 166 | 1,643 | 166
– surplus arising on revaluation | 43 | 1,826 | 185 | 1,826 | 185
– income taxes | 43 | (183) | (19) | (183) | (19)
Post employment benefit obligations: |  | (14) | 893 | (14) | 893
– remeasurement of post employment benefit obligations | 39 | (22) | 1,374 | (22) | 1,374
– income taxes |  | 8 | (481) | 8 | (481)
Equity instruments designated at fair value through other comprehensive income: |  | 4 | 1 | 4 | 1
– fair value gains | 43 | 6 | 2 | 6 | 2
– income taxes | 43 | (2) | (1) | (2) | (1)
Other comprehensive income for the year, net of tax |  | 10,330 | (22,117) | 10,330 | (22,117)
Total comprehensive income for the year |  | 97,086 | 14,065 | 93,629 | 12,390

The notes on pages 75 to 184 are an integral part of these financial statements.
From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative information
in respect of the financial year ended 31 December 2022 has been restated accordingly.
Financial statements

70 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Statements of financial position
for the year ended 31 December

|  | Group | Bank
|  | At 31 Dec | At 31 Dec | At 1 Jan | At 31 Dec | At 31 Dec
|  | 2023 | 2022 | 2022 | 2023 | 2022
| Notes | €000 | €000 | €000 | €000 | €000
Assets |  |  |  |  |  |
Balances with Central Bank of Malta, Treasury Bills and cash | 21 | 1,676,639 | 1,583,348 | 1,495,135 | 1,676,639 | 1,583,348
Items in the course of collection from other banks |  | 8,427 | 6,921 | 4,453 | 8,427 | 6,921
Financial assets mandatorily measured at fair value through profit or loss | 22 | 693,024 | 660,446 | 767,808 | — | —
Derivatives | 23 | 13,577 | 25,745 | 4,640 | 13,577 | 25,745
Loans and advances to banks | 24 | 720,583 | 732,507 | 619,273 | 716,140 | 726,217
Loans and advances to customers | 25 | 3,083,843 | 3,175,167 | 3,196,725 | 3,083,843 | 3,175,167
Financial investments | 26 | 1,315,859 | 1,004,770 | 845,735 | 1,315,857 | 1,004,768
Prepayments, accrued income and other assets | 27 | 33,699 | 34,092 | 28,683 | 30,086 | 29,013
Current tax assets |  | 1,153 | 3,496 | 3,669 | 152 | 1,363
Reinsurance contract assets | 10 | 2,557 | 2,959 | 63 | — | —
Non-current assets held for sale | 28 | 5,816 | 5,173 | 6,673 | 5,816 | 5,173
Investments in subsidiaries | 29 | — | — | — | 30,859 | 30,859
Investment property | 30 | — | — | 1,600 | — | —
Right-of-use assets | 31 | 2,284 | 2,459 | 2,569 | 2,284 | 2,459
Property, plant and equipment | 32 | 51,694 | 44,627 | 41,923 | 51,691 | 44,623
Intangible assets | 33 | 20,762 | 19,169 | 16,603 | 20,356 | 18,604
Deferred tax assets | 34 | 31,002 | 35,767 | 29,886 | 30,623 | 35,620
Total assets |  | 7,660,919 | 7,336,646 | 7,065,438 | 6,986,350 | 6,689,880
Liabilities |  |  |  |  |  |
Deposits by banks | 35 | 5,117 | 2,861 | 1,397 | 5,117 | 2,861
Customer accounts | 36 | 6,141,520 | 5,970,958 | 5,621,195 | 6,172,269 | 6,010,392
Items in the course of transmission to other banks |  | 18,359 | 27,397 | 21,573 | 18,359 | 27,397
Liabilities under investment contracts | 37 | 156,958 | 162,123 | 185,137 | — | —
Derivatives | 23 | 5,748 | 10,252 | 4,592 | 5,748 | 10,252
Accruals, deferred income and other liabilities | 38 | 55,055 | 42,550 | 34,471 | 44,761 | 33,346
Current tax liabilities |  | 35,190 | 2,104 | 499 | 35,190 | 2,104
Insurance contract liabilities | 10 | 519,363 | 499,507 | 582,373 | — | —
Provisions | 39 | 21,849 | 20,080 | 21,252 | 20,719 | 18,830
Deferred tax liabilities | 34 | 3,727 | 3,569 | 3,649 | 3,727 | 3,569
Borrowings from a group undertaking | 40 | 90,000 | 60,000 | 60,000 | 90,000 | 60,000
Subordinated liabilities | 41 | 65,000 | 62,000 | 62,000 | 65,000 | 62,000
Total liabilities |  | 7,117,886 | 6,863,401 | 6,598,138 | 6,460,890 | 6,230,751
Equity |  |  |  |  |  |
Called up share capital | 42 | 108,092 | 108,092 | 108,092 | 108,092 | 108,092
Revaluation reserve | 43 | 10,408 | 64 | 24,330 | 10,408 | 64
Retained earnings | 43 | 424,533 | 365,089 | 334,878 | 406,960 | 350,973
Total equity |  | 543,033 | 473,245 | 467,300 | 525,460 | 459,129
Total liabilities and equity |  | 7,660,919 | 7,336,646 | 7,065,438 | 6,986,350 | 6,689,880
Memorandum items |  |  |  |  |  |
Guarantees and other contingent liabilities | 44 | 200,495 | 182,250 | 164,388 | 200,445 | 182,250
Commitments | 44 | 838,659 | 842,320 | 967,739 | 838,659 | 842,320

The notes on pages 75 to 184 are an integral part of these financial statements.
From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative information
in respect of the financial year ended 31 December 2022 has been restated accordingly, whereas the IFRS 17 transition balance sheet as at 1 January
2022 is also presented.
The financial statements on pages 69 to 74 were approved and authorised for issue by the Board of Directors on 21 February 2024. The financial
statements were signed on behalf of the bank's Board of Directors by John Bonello (Chairman) and Geoffrey Fichte (Chief Executive Officer) as
per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Accounts 2023.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 71

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 Jan 2023 |  | 108,092 | 64 | 365,089 | 473,245
Profit for the year |  | — | — | 86,756 | 86,756
Other comprehensive income |  |  |  |  |
Financial investments measured at fair value through other comprehensive income: |  |  |  |  |
– fair value gains, net of tax | 43 | — | 8,701 | — | 8,701
Properties: |  |  |  |  |
– surplus arising on revaluation, net of tax | 43 | — | 1,643 | — | 1,643
Post employment benefit obligations: |  |  |  |  |
– remeasurement of post employment benefit obligations, net of tax |  | — | — | (14) | (14)
Total other comprehensive income |  | — | 10,344 | (14) | 10,330
Total comprehensive income for the year |  | — | 10,344 | 86,742 | 97,086
Transactions with owners, recognised directly in equity |  |  |  |  |
Contributions by and distributions to owners: |  |  |  |  |
– share-based payment arrangements, net of tax |  | — | — | (108) | (108)
– dividends | 19 | — | — | (27,190) | (27,190)
Total contributions by and distributions to owners |  | — | — | (27,298) | (27,298)
At 31 Dec 2023 |  | 108,092 | 10,408 | 424,533 | 543,033
At 31 Dec 2021 (IFRS 4) |  | 108,092 | 24,330 | 357,315 | 489,737
Impact on transition to IFRS 17 net of tax 1 |  | — | — | (22,437) | (22,437)
At 1 Jan 2022 (restated) |  | 108,092 | 24,330 | 334,878 | 467,300
Profit for the year (restated) |  | — | — | 36,182 | 36,182
Other comprehensive income |  |  |  |  |
Financial investments measured at fair value through other comprehensive income: |  |  |  |  |
– fair value losses, net of tax | 43 | — | (23,176) | — | (23,176)
Properties: |  |  |  |  | —
– surplus arising on revaluation, net of tax | 43 | — | 166 | — | 166
Post employment benefit obligations: |  |  |  |  |
– remeasurement of post employment benefit obligations, net of tax |  | — | — | 893 | 893
Total other comprehensive income (restated) |  | — | (23,010) | 893 | (22,117)
Total comprehensive income for the year (restated) |  | — | (23,010) | 37,075 | 14,065
Other movements |  |  |  |  |
Properties: |  |  |  |  |
– transfer of revaluation surplus on disposal of property to retained earnings, net of tax | 43 | — | (1,256) | 1,256 | —
Transactions with owners, recognised directly in equity |  |  |  |  |
Contributions by and distributions to owners: |  |  |  |  |
– share-based payment arrangements, net of tax |  | — | — | (110) | (110)
– dividends | 19 | — | — | (8,010) | (8,010)
Total contributions by and distributions to owners |  | — | — | (8,120) | (8,120)
At 31 Dec 2022 (restated) |  | 108,092 | 64 | 365,089 | 473,245

The notes on pages 75 to 184 are an integral part of these financial statements.
1 The negative impact of IFRS 17 on previously reported total equity as at 31 December 2022 is €23,023,000.
Financial statements

72 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 Jan 2023 |  | 108,092 | 64 | 350,973 | 459,129
Profit for the year |  | — | — | 83,299 | 83,299
Other comprehensive income |  |  |  |  |
Financial investments measured at fair value through other comprehensive income: |  |  |  |  |
– fair value gains, net of tax | 43 | — | 8,701 | — | 8,701
Properties: |  |  |  |  |
– surplus arising on revaluation, net of tax | 43 | — | 1,643 | — | 1,643
Post employment benefit obligations: |  |  |  |  |
– remeasurement of post employment benefit obligations, net of tax |  | — | — | (14) | (14)
Total other comprehensive income |  | — | 10,344 | (14) | 10,330
Total comprehensive income for the year |  | — | 10,344 | 83,285 | 93,629
Transactions with owners, recognised directly in equity |  |  |  |  |
Contributions by and distributions to owners: |  |  |  |  |
– share-based payment arrangements, net of tax |  | — | — | (108) | (108)
– dividends | 19 | — | — | (27,190) | (27,190)
Total contributions by and distributions to owners |  | — | — | (27,298) | (27,298)
At 31 Dec 2023 |  | 108,092 | 10,408 | 406,960 | 525,460
At 1 Jan 2022 |  | 108,092 | 24,330 | 322,437 | 454,859
Profit for the year |  | — | — | 34,507 | 34,507
Other comprehensive income |  |  |  |  |
Financial investments measured at fair value through other comprehensive income: |  |  |  |  |
– fair value losses, net of tax | 43 | — | (23,176) | — | (23,176)
Properties: |  |  |  |  | —
– surplus arising on revaluation, net of tax | 43 | — | 166 | — | 166
Post employment benefit obligations: |  |  |  |  |
– remeasurement of post employment benefit obligations, net of tax |  | — | — | 893 | 893
Total other comprehensive income |  | — | (23,010) | 893 | (22,117)
Total comprehensive income for the year |  | — | (23,010) | 35,400 | 12,390
Other movements |  |  |  |  |
Properties: |  |  |  |  |
– transfer of revaluation surplus on disposal of property to retained earnings, net of tax | 43 | — | (1,256) | 1,256 | —
Transactions with owners, recognised directly in equity |  |  |  |  |
Contributions by and distribution to owners: |  |  |  |  |
– share-based payment arrangements, net of tax |  | — | — | (110) | (110)
– dividends | 19 | — | — | (8,010) | (8,010)
Total contributions by and distributions to owners |  | — | — | (8,120) | (8,120)
At 31 Dec 2022 |  | 108,092 | 64 | 350,973 | 459,129

The notes on pages 75 to 184 are an integral part of these financial statements.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 73

Statements of cash flows
for the year ended 31 December

|  | Group | Bank
|  | 2023 | 2022 | 2023 | 2022
| Notes | €000 | €000 | €000 | €000
Cash flows from operating activities |  |  |  |  |
Interest, fees, loan recoveries and premium receipts |  | 290,237 | 223,986 | 218,284 | 149,702
Interest, fees and claims payments |  | (107,546) | (77,827) | (17,368) | (10,823)
Payments to employees and suppliers |  | (86,079) | (87,304) | (77,579) | (79,550)
Cash flows from operating activities before changes in operating assets and liabilities |  | 96,612 | 58,855 | 123,337 | 59,329
(Increase)/decrease in operating assets: |  |  |  |  |
– financial assets mandatorily measured at fair value through profit or loss |  | 18,006 | 5,232 | — | —
– reserve deposit with Central Bank of Malta |  | 1,640 | (2,559) | 1,640 | (2,559)
– loans and advances to banks and customers |  | 213,182 | 64,971 | 213,182 | 64,971
– Treasury Bills |  | (325,612) | 161,352 | (325,612) | 161,352
– other assets |  | 2,915 | (2,734) | 2,886 | (3,186)
(Decrease)/increase in operating liabilities: |  |  |  |  |
– deposits by banks and customer accounts |  | 172,447 | 347,356 | 163,278 | 350,304
– other liabilities |  | (2,298) | (2,253) | (2,268) | (2,163)
Net cash from operating activities before tax |  | 176,892 | 630,220 | 176,443 | 628,048
– tax paid |  | (11,601) | (11,550) | (9,918) | (10,116)
Net cash from operating activities |  | 165,291 | 618,670 | 166,525 | 617,932
Cash flows from investing activities |  |  |  |  |
Dividends received |  | — | — | 500 | 850
Interest received from financial investments |  | 11,097 | 6,142 | 11,097 | 6,142
Purchase of financial investments |  | (568,904) | (464,793) | (568,904) | (464,793)
Proceeds from sale and maturity of financial investments |  | 283,058 | 255,296 | 283,058 | 255,296
Purchase of property, plant and equipment and intangible assets |  | (16,055) | (12,808) | (15,945) | (12,726)
Proceeds from sale of property, plant and equipment and intangible assets |  | — | 1,600 | — | —
Net cash from investing activities |  | (290,804) | (214,563) | (290,194) | (215,231)
Cash flows from financing activities |  |  |  |  |
Dividends paid |  | (27,190) | (8,010) | (27,190) | (8,010)
Proceeds from borrowings from a group undertaking |  | 30,000 | — | 30,000 | —
Issue of subordinated liabilities |  | 65,000 | — | 65,000 | —
Repayment of subordinated liabilities |  | (62,000) | — | (62,000) | —
Net cash from financing activities |  | 5,810 | (8,010) | 5,810 | (8,010)
Net increase in cash and cash equivalents |  | (119,703) | 396,097 | (117,859) | 394,691
Cash and cash equivalents at beginning of year |  | 1,933,003 | 1,549,671 | 1,926,727 | 1,543,517
Effect of exchange rate changes on cash and cash equivalents |  | 12,391 | (12,765) | 12,472 | (11,481)
Cash and cash equivalents at end of year | 46 | 1,825,691 | 1,933,003 | 1,821,340 | 1,926,727

The notes on pages 75 to 184 are an integral part of these financial statements.
From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative information
in respect of the financial year ended 31 December 2022 has been restated accordingly.
Financial statements

74 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Notes on the financial statements

1 | Reporting entity

HSBC Bank Malta p.l.c. (the ‘bank’) is a limited liability company domiciled and incorporated in Malta.
The bank and its subsidiaries, namely HSBC Life Assurance (Malta) Ltd. (the ‘insurance subsidiary’) and HSBC Global Asset Management (Malta)
Limited (‘the asset management subsidiary’), are included in the scope of consolidation as at and for the year ended 31 December 2023 and are
referred to as the ‘local group’ in these financial statements. In addition, the local group forms part of the global HSBC group consolidation,
referred to as the ‘HSBC Group’ in these financial statements.For the purposes of tabular disclosures, the term ‘Group’ refers to the local group.
In this respect, t he consolidated financial statements of the local group as at and for the year ended 31 December 2023 comprise the bank and
its subsidiaries, whereas the standalone financial statements of HSBC Bank Malta p.l.c. reflect the financial results of the bank. 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 2023, there were no unendorsed standards effective for the year
ended 31 December 2023 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.
Standards adopted during the year ended 31 December 2023
IFRS 17 ‘Insurance Contracts’
On 1 January 2023, the local group adopted the requirements of IFRS 17 ‘Insurance Contracts’ retrospectively with comparatives restated from
the transition date, 1 January 2022. The local group did not early adopt IFRS 17 in previous periods.
On adoption of IFRS 17, IFRS 4 based balances, including the present value of in-force business (‘PVIF’) asset in relation to the upfront
recognition of future profits of in-force insurance contracts, were derecognised. Insurance contract liabilities have been re-measured under IFRS
17 based on groups of insurance contracts, which include the fulfilment cash flows comprising best estimate of the present value of the future
cash flows (for example premiums and payouts for claims, benefits, and expenses), together with a risk adjustment for non-financial risk, as well
as the contractual service margin (‘CSM’). The CSM represents the unearned profits that will be released and systematically recognised in
Insurance revenue as services are provided over the expected coverage period.
The standard allows the re-designation of eligible financial assets in order to reduce accounting mismatches. The local group did not avail of the
option to re-designate eligible financial assets at fair value through profit or loss.
The key differences between IFRS 4 and IFRS 17 are summarised below:

| IFRS 4 | IFRS 17
Balance sheet | – Insurance contract liabilities for non-linked life insurance contracts are calculated by actuarial principles. Liabilities under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value, by reference to the value of the relevant underlying funds or indices. – An intangible asset for the PVIF is recognised, representing the upfront recognition of future profits associated with in force insurance contracts. | – Insurance contract liabilities are measured for groups of insurance contracts at current value, comprising the fulfilment cash flows and the CSM. – The fulfilment cash flows comprise the best estimate of the present value of the future cash flows, together with a risk adjustment for non- financial risk. – The CSM represents the unearned profit.
Profit emergence / recognition | – The value of new business is reported as revenue on Day 1 as an increase in PVIF. – The impact of the majority of assumption changes is recognised immediately in the income statement. – Variances between actual and expected cash flows are recognised in the period they arise. | – The CSM is systematically recognised in revenue as services are provided over the expected coverage period of the group of contracts (i.e. no Day 1 profit). – Contracts are measured using the general measurement model (‘GMM’) or the variable fee approach (‘VFA’) model for insurance contracts with direct participation features upon meeting the eligibility criteria. Under the VFA model, the local group’s share of the investment experience and assumption changes are absorbed by the CSM and released over time to profit or loss. For contracts measured under GMM, the local group’s share of the investment volatility is recorded in profit or loss as it arises. – Losses from onerous contracts are recognised in the income statement immediately.
Investment return assumptions (discount rate) | – PVIF is calculated based on long-term investment return assumptions based on assets held. It therefore includes investment margins expected to be earned in future. | – Under the market consistent approach, expected future investment spreads are not included in the investment return assumption. Instead, the discount rate includes an illiquidity premium that reflects the nature of the associated insurance contract liabilities.
Expenses | – Total expenses to acquire and maintain the contract over its lifetime are included in the PVIF calculation. – Expenses are recognised across operating expenses and fee expense as incurred and the allowances for those costs released from the PVIF simultaneously . | – Projected lifetime expenses that are directly attributable costs are included in the insurance contract liabilities and recognised in the insurance service result. – Non-attributable costs are reported in operating expenses.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 75

Transition
In applying IFRS 17 retrospectively, the full retrospective approach (‘FRA’) is used unless it is impracticable. When the FRA is impracticable such
as when there is a lack of sufficient and reliable data, an entity has an accounting policy choice to use either the modified retrospective approach
(‘MRA’) or the fair value approach (‘FVA’). The local group has applied the FRA for new business from 2020 and the FVA for the majority of
contracts for which the FRA is impracticable.
Under the FVA, the valuation of insurance liabilities on transition is based on the requirements of IFRS 13 ‘Fair Value Measurement’. This
requires consideration of 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 (an exit price). The CSM is calculated as the difference between what a market participant would demand
for assuming the unexpired risk associated with insurance contracts, including required profit, and the fulfilment cash flows that are determined
using IFRS 17 principles.
In determining the fair value, the local group considered the estimated profit margin that a market participant would demand in return for
assuming the insurance liabilities with the consideration of the level of capital that a market participant would be required to hold, and the
discount rate that takes into account the level of ‘matching’ between the local group’s assets and related liabilities. The impact of transitioning
to IFRS 17 on the financial statements was a reduction to total equity amounting to €22,437,00 as at 1 January 2022 and Notes 3, 49 and 54
contain further information in this respect.
Amendments to IAS 12
On 23 May 2023, the IASB issued its amendments to IAS 12, International Tax Reform – Pillar Two Model Rules, which became effective
immediately with disclosure requirements effective for annual reporting periods beginning on or after 1 January 2023. The effect of the
amendments is not applicable to the local group.
On 7 May 2021, the IASB issued its amendments to IAS 12, Deferred Tax related to Assets and Liabilities arising from a Single Transaction,
which became effective for annual reporting periods beginning on or after 1 January 2023. The amendments did not have any impact on the
amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
There were no other new standards or amendments to standards that had a significant effect on these financial statements.
(b)Historical cost convention
These financial statements have been prepared on the historical cost basis, except for insurance and reinsurance contract assets/liabilities
measured in accordance with IFRS 17 and the following items that are measured at fair value:
– Derivatives;
– Treasury Bills;
– Financial assets mandatorily measured at fair value through profit or loss;
– Financial investments;
– Property within ‘Property, plant and equipment’; and
– Liabilities under investment contracts.
(c)Future accounting developments
Minor amendments to IFRSs
The IASB has published a number of minor amendments to IFRSs that are effective from 1 January 2024, which have 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.
(d)Foreign currencies
The functional currency of the bank is euro, which is also the presentation currency of the consolidated financial statements of the local group.
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.
(e)Critical 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 or
measurement of items highlighted within Note 54 ‘Critical estimates and judgements’, 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 2023 Financial Statements. Management’s selection of the local group’s accounting policies which contain
critical estimates and judgements reflects the materiality of the items to which the policies are applied, the high degree of judgement and
estimation of uncertainty involved.
Further information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment, are detailed
in Note 54.
Management has considered the impact of climate-related risks on the local group’s financial position and performance. While the effects of
climate change are a source of uncertainty, as at 31 December 2023 management does not consider there to be a material impact on critical
judgements and estimates from the physical, transition and other climate-related risks in the short to medium term.
Notes on the financial statements

76 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

In management’s view, apart from judgements involving estimations as reflected within Note 54, 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.
(f)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 uncertainty that the current inflationary and elevated interest rate environment has had on the local
group’s and bank’s operations, as well as considering potential impacts from other top and emerging risks, including exposure to extreme
climate change and environmental risk events, geopolitical risks, drops in asset prices, and local jurisdiction risks, and the related impact on
profitability, capital and liquidity.

3 | Summary of material 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)Consolidation and related policies
i Consolidation
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 local group consolidates 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.
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.
ii Structured 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.
i ii 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.
(b)Financial instruments
i Initial recognition
The local group recognises a financial instrument 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 co ntracts 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. Similarly, financial liabilities 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.
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, if there is a difference between the transaction price and the fair value of financial instruments whose fair value is based on a quoted
price in an active market or a valuation technique that uses only data from observable markets, the local group recognises the difference as a

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 77

trading gain or loss at inception (a ‘day 1 gain or loss’). In all other cases, the entire day 1 gain or loss is deferred and recognised in the income
statement over the life of the transaction until the transaction matures, is closed out, the valuation inputs become observable or the local group
enters into an offsetting transaction. The fair value of financial instruments is generally measured on an individual basis.
ii Classification 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 (‘FVPL’) 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 FVPL.
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 and debt securities classified within ‘Financial Investments’ measured at amortised cost.
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 in Note 3(b)(iv).
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’.
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 in Note 3(b)(iv) and impairment is recognised in 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, such as if they do not contain contractual terms that give rise on
specified dates to cash flows that are SPPI, are measured at FVPL.
The portfolios of all financial assets attributable to the local group’s insurance business 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
Notes on the financial statements

78 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

irrevocably designate any equity securities as FVOCI. Consequently, all investments attributable to insurance business are mandatorily
measured at FVPL.
Financial liabilities measured at amortised cost
Financial liabilities measured at amortised cost are initially measured at fair value 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.
Financial liabilities measured at amortised cost comprise principally deposit by banks, customer accounts, borrowings from a group undertaking
and subordinated liabilities.
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 investment 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 FVPL. 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/(expense) from assets and liabilities of insurance
business measured at fair value through profit or loss’.
Derivatives
Derivatives are financial instruments that derive their value from the price of underlying items such as currency forwards or interest rate swaps.
Derivatives are recognised initially and are subsequently measured at fair value through profit or loss. Derivatives are classified as assets when
their fair value is positive or as liabilities when their fair value is negative. Fair values of over-the-counter derivatives are obtained using valuation
techniques, including discounted cash flow models and option pricing models.
When derivatives are not part of fair value designated relationships, these financial instruments are designated as held for trading. Accordingly,
all gains and losses from changes in the fair values of such derivatives 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 business measured
at fair value through profit or loss’.
Fair value hedge accounting
Fair value hedge accounting does not change the recording of gains and losses on derivatives and other hedging instruments, but results in
recognising changes in the fair value of the hedged assets or liabilities attributable to the hedged risk that would not otherwise be recognised in
the income statement. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued and the
cumulative adjustment to the carrying amount of the hedged item is amortised to the income statement on a recalculated effective interest rate,
unless the hedged item has been derecognised, in which case it is recognised in the income statement immediately.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any
changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Derivatives are designated in hedge accounting
relationships where the required criteria for documentation and hedge effectiveness are met.
The local group applies fair value hedging to hedge separate hedged positions on an individual asset basis, generally fixed interest securities, by
utilising interest rate swaps as hedging instruments. The gain or loss relating to the effective portion of interest rate swaps hedging fixed
interest loans and securities is recognised in profit or loss within interest income, together with changes in the fair value of the hedged fixed
interest securities attributable to interest rate risk.
The gain or loss relating to the ineffective portion is also recognised in profit or loss within ‘Interest and similar income on debt and other fixed
income instruments’ and disclosed separately.
iii Derecognition of financial instruments
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.
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.
iv Impairment of amortised cost and FVOCI financial assets
Expected credit losses (‘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).

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 79

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’. The local group does not have purchased or originated credit impaired (‘POCI’) financial assets.
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 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 for the wholesale portfolio and 1 day past due for the retail portfolio. 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. Moreover, if an obligor is in stage 2, being marked as
performing forborne, and becomes 30 days past due, then the obligor is downgraded to default status.
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.
Notes on the financial statements

80 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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
7.2-8.2 | 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 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.
The retail methodology to determine whether a SICR has occurred is applied to exposures within segments with a similar credit risk profile and
takes into consideration any increase in credit risk against a pre-defined threshold which also considers 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.
For staging purposes, exposures classified within the mortgage portfolio are segmented on the basis of current delinquency, past delinquency in
the past 12 months, and a behaviour score determined at borrower level, whereas exposures classified within the other unsecured portfolios
are segmented on the basis of current delinquency only. The behavioural score comprises a number of different indicators designed to capture
certain credit risk characteristics and is used by the local group as an Early Warning Indicator (‘EWI’) to identify early signs of distress in relation
to retail customers whose creditworthiness has deteriorated due to financial difficulties.
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 that 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 special credit unit (‘SMU’).
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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 81

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.
Forborne loans
A ‘forborne 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, forborne loans are regarded as credit
impaired upon renegotiation unless the renegotiation is strictly limited to non-payment related concessions (e.g. covenant waivers) and there are
no other indicators of impairment. Moreover, loans are considered forborne 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 initially.
Forbearance is only granted in situations where the customer has shown a willingness to repay the borrowing and is expected to be able to
meet the revised obligations.
Accordingly, loans are identified as forborne and classified as credit impaired when the contractual payment terms are modified due to
significant credit distress of the borrower. Forborne 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.
A forborne loan 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 forborne loan is a substantially different financial instrument. Any new loans that
arise following derecognition events in these circumstances are considered to be Purchased or originated credit impaired (‘POCI’) and will
continue to be disclosed as forborne loans.
Other than originated credit impaired loans, all other modified loans classified within the wholesale portfolio could be transferred out of stage 3
if they no longer exhibit any evidence of being credit impaired and, in the case of forborne 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. 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 forbearance. These loans could be transferred to stage 1 or 2
based on the mechanism as described in the section called ‘Movement between stages’ 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.
Similarly, retail forborne loans are also classified as stage 3 assets. Retail forborne 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 forborne and retain the designation of forborne
until maturity or derecognition.
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. Except for renegotiated loans, financial instruments are transferred out of stage 3 when they no longer exhibit any
evidence of credit impairment. 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: a probability of default (‘PD’), a loss given default (‘LGD’), and the
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, where required 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.
Notes on the financial statements

82 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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. 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.
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. Expected LGD is based on estimate of loss given default including the expected impact of future economic conditions. 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 applies multiple forward-looking economic scenarios determined with reference to external forecast distributions representative
of its view of forecast economic conditions. This approach is considered sufficient to calculate unbiased ECLs in most economic environments.
In certain economic environments, additional analysis may be necessary and may result in additional scenarios or adjustments, to reflect a range
of possible economic outcomes sufficient for an unbiased estimate.
The recognition and measurement of ECL involves the use of significant judgement and estimation. In this respect, multiple forward-looking
scenarios are determined based on macroeconomic forecasts and applied to credit risk models to estimate expected credit losses. Probability
weights are applied to the scenarios in order to determine an unbiased ECL estimate. Management judgemental adjustments are used to
address late breaking events, data and model limitations, model deficiencies and expert credit judgements.
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. Within this methodology, four economic scenarios are used to capture the current economic environment and to articulate
management’s view of the range of potential outcomes. Scenarios produced to calculate ECL are aligned to the local group’s top and emerging
risks.
Three of the scenarios are drawn from consensus forecasts and distributional estimates. The Central scenario is deemed to represent the ‘most
likely’ scenario, and usually attracts the largest probability weighting, while the outer consensus scenarios represent the tails of the distribution,
which are less likely to occur. The Central scenario is created using the average of a panel of external forecasters. Consensus Upside and
Downside scenarios are created with reference to distributions that capture forecasters’ views of the entire range of outcomes. In the later
years of the scenarios, projections revert to long-term consensus trend expectations. In the consensus outer scenarios, reversion to trend
expectations is done mechanically with reference to historically observed quarterly changes in the values of macroeconomic variables.
The fourth scenario – the Downside 2 scenario – is designed to represent management’s view of severe downside risks. It is a narrative-driven
scenario that explores more extreme economic outcomes than those captured by the consensus scenarios. In this scenario, variables do not, by
design, revert to long-term trend expectations. They may instead explore alternative states of equilibrium, where economic activity moves
permanently away from past trends. The consensus Downside and the consensus Upside scenarios are each constructed to be consistent with
a 10% probability. The Downside 2 is constructed with a 5% probability. The Central scenario is assigned the remaining 75%. This weighting
scheme is deemed appropriate for the unbiased estimation of ECL in most circumstances. However, the local group may depart from this
probability-based scenario weighting approach when the economic outlook is determined to be particularly uncertain and risks are elevated.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 83

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)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).
(d)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, 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.
(e)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(g)).
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.
(f)Right-of-use assets
Right-of-use assets are initially measured at cost, which comprises the following:
– the amount of the initial measurement of lease liability;
– any lease payments made at or before the commencement date less any lease incentives received;
– any initial direct costs; and
– restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the local
group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. While the
local group revalues its land and buildings that are presented within property, plant and equipment, it has chosen not to do so for the right-of-use
buildings held by the local group.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis
as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less without a purchase option. Low-value assets
comprise IT equipment and small items of office furniture.
Notes on the financial statements

84 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

(g)Impairment of non-financial assets
The carrying amounts of the local group’s non-financial assets, which comprise property, plant and equipment, intangible assets and right-of-use
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). In this respect, non-financial assets are tested for impairment at the individual asset level when there is indication of
impairment at that level, or at the cash-generating unit (‘CGU’) level for assets that do not have a recoverable amount at the individual asset
level. The local group also tests for impairment at the CGU level when there is indication of impairment at that level. For this purpose, CGUs are
considered to be the principal operating legal entities divided by global business.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses
are recognised in profit or loss, unless the asset is carried at a revalued amount.
The carrying amount of a CGU comprises the carrying value of its assets and liabilities, including non-financial assets that are directly attributable
to it and non-financial assets that can be allocated to it on a reasonable and consistent basis. Non-financial assets that cannot be allocated to an
individual CGU are tested for impairment at an appropriate grouping of CGUs.
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.
(h)Non-current assets held for sale
Non-current assets 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 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.
(i)Insurance and reinsurance contracts
i Definition and classification
A contract is classified as an insurance contract where the local group accepts significant insurance risk from another party by agreeing to
compensate that party if it is adversely affected by a specified uncertain future event. An insurance contract may also transfer financial risk, but
is accounted for as an insurance contract if the insurance risk is significant. In addition, the local group issues investment contracts with
discretionary participation features (‘DPF’), which are also accounted under IFRS 17 ’Insurance Contracts’.
The local group uses judgement to assess whether a contract transfers insurance risk (that is, if there is a scenario with commercial substance
in which the local group has the possibility of a loss on a present value basis) and whether the accepted insurance risk is significant.
A reinsurance contract transfers significant risk if it transfers substantially all of the insurance risk resulting from the insured portion of the
underlying insurance contracts, even if it does not expose the reinsurer to the possibility of a significant loss. All references to insurance
contracts in these financial statements apply to insurance contracts issued or acquired, reinsurance contracts held and investment contracts
with DPF, unless specifically stated otherwise.
The local group issues certain insurance contracts that are substantially investment-related service contracts where the return on the underlying
items is shared with policyholders. Underlying items comprise specified portfolios of investment assets that determine amounts payable to
policyholders. The local group’s policy is to hold such investment assets.
An insurance contract with direct participation features is defined by the local group as one which, at inception, meets the following criteria:
– the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;
– the local group expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items;
and
– the local group expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair
value of the underlying items.
These criteria are assessed at the individual contract level based on the local group’s expectations at the contract’s inception, and they are not
reassessed in subsequent periods, unless the contract is modified. The variability in the cash flows is assessed over the expected duration of a
contract. The duration of a contract takes into account all cash flows within the boundary.
Investment components in Savings and Participating products comprise policyholder account values less applicable surrender fees.
The local group uses judgement to assess whether the amounts expected to be paid to the policyholder constitute a substantial share of the fair
value returns on the underlying items.
Insurance contracts with direct participation features are viewed as creating an obligation to pay policyholders an amount that is equal to the fair
value of the underlying items, less a variable fee for service. The variable fee comprises the amount of the local group’s share of the fair value of
the underlying items, which is based on a fixed percentage of investment management fees (withdrawn annually from policyholder account
values based on the fair value of underlying assets and specified in the contracts with policyholders), less the FCF that do not vary based on the
returns on underlying items. The measurement approach for insurance contracts with direct participation features is referred to as the Variable
Fee Approach (‘VFA’). The VFA modifies the accounting model in IFRS 17 to reflect that the consideration that an entity receives for the
contracts is a variable fee.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 85

Direct participating contracts issued by the local group are contracts with direct participation features where the local group holds the pool of
underlying assets and accounts for these group of contracts under the VFA.
All other insurance contracts originated by the local group, are without direct participation features and, together with reinsurance contracts
held, are measured under the GMM.
ii Aggregation of insurance contracts
Individual insurance contracts that are managed together and subject to similar risks are identified as a portfolio. Contracts that are managed
together usually belong to the same product group, and have similar characteristics such as being subject to a similar pricing framework or
similar product management. If a contract is exposed to more than one risk, the dominant risk of the contract is used to assess whether the
contract features similar risks. Each portfolio is further separated by the contract’s expected profitability. The portfolios are split by their
profitability into: (i) contracts that are onerous at initial recognition; (ii) contracts that at initial recognition have no significant possibility of
becoming onerous subsequently; and (iii) the remaining contracts. These profitability groups are then divided by issue date, with most contracts
the local group issues after the transition date being grouped into calendar quarter cohorts.
The measurement of the insurance contract liability is based on groups of insurance contracts as established at initial recognition, and includes
fulfilment cash flows (including risk adjustment) as well as the CSM representing the unearned profit if the respective group is deemed to be
profitable. The local group has elected to update the estimates used in the measurement on a year-to-date basis.
For each portfolio of contracts, the local group determines the appropriate level at which reasonable and supportable information is available, to
assess whether these contracts are onerous at initial recognition and whether non-onerous contracts have a significant possibility of becoming
onerous. This level of granularity determines sets of contracts. The local group uses judgement to determine at what level of granularity the
local group has reasonable and supportable information that is sufficient to conclude that all contracts within a set are sufficiently homogeneous
and will be allocated to the same group without performing an individual contract assessment.
Portfolios of reinsurance contracts held are assessed for aggregation separately from portfolios of insurance contracts issued. Applying the
grouping requirements to reinsurance contracts held, the local group aggregates reinsurance contracts held concluded within a calendar year
(annual cohorts) into groups of: (i) contracts for which there is a net gain at initial recognition, if any; (ii) contracts for which, at initial recognition,
there is no significant possibility of a net gain arising subsequently; and (iii) remaining contracts in the portfolio, if any.
Reinsurance contracts held are assessed for aggregation requirements on an individual contract basis. The local group tracks internal
management information reflecting historical experiences of such contracts’ performance. This information is used for setting pricing of these
contracts such that they result in reinsurance contracts held in a net cost position without a significant possibility of a net gain arising
subsequently. Given the local group’s reinsurance structure, there is less judgement in determining the grouping of reinsurance contracts.
Before the local group accounts for an insurance contract based on the guidance in IFRS 17, it analyses whether the contract contains
components that should be separated. IFRS 17 distinguishes three categories of components that have to be accounted for separately:
– cash flows relating to embedded derivatives that are required to be separated;
– cash flows relating to distinct investment components; and
– promises to transfer distinct goods or distinct services other than insurance contract services.
The local group applies IFRS 17 to all remaining components of the contract. The local group does not have any contracts that require further
separation or combination of insurance contracts.
iii Reinsurance contracts held
The local group purchased reinsurance in the normal course of business for the purpose of limiting its net loss potential. Reinsurance
arrangements do not relieve the local group from its direct obligations to its policyholders.
The measurement of reinsurance contracts held follows the same principles and consistent assumptions as those for insurance contracts
issued, with the exception of the following:
– Measurement of the cash flows include an allowance on a probability-weighted basis for the effect of any non-performance by the
reinsurers, including the effects of collateral and losses from disputes.
– The local group determines the risk adjustment for non-financial risk so that it represents the amount of risk being transferred to the
reinsurer.
The local group recognises both net gain and net cost on purchasing reinsurance at initial recognition in the statement of financial position as
CSM and releases this to profit or loss as the reinsurer renders services, except for the net cost that relates to events before initial recognition.
iv Recognition and derecognition
Groups of insurance contracts issued are initially recognised from the earliest of the following:
– the beginning of the coverage period;
– the date when the first payment from the policyholder is due or actually received, if there is no due date; and
– when the local group determines that a group of contracts becomes onerous.
Investment contracts with DPF are initially recognised at the date when the local group becomes a party to the contract.
Reinsurance contracts held are recognised as follows:
– a group of reinsurance contracts held that provide proportionate coverage (quota share reinsurance) is recognised at the later of:
– the beginning of the coverage period of the group; and
– the initial recognition of any underlying insurance contract;
– all other groups of reinsurance contracts held are recognised from the beginning of the coverage period of the groups of reinsurance
contracts held;
unless the local group entered into the reinsurance contract held at or before the date when an onerous group of underlying contracts is
recognised prior to the beginning of the coverage period of the group of reinsurance contracts held, in which case the reinsurance contract held
is recognised at the same time as the group of underlying insurance contracts is recognised.
Notes on the financial statements

86 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Only contracts that individually meet the recognition criteria by the end of the reporting period are included in the group. When contracts meet
the recognition criteria in the groups after the reporting date, they are added to the group in the reporting period in which they meet the
recognition criteria, subject to the annual cohorts restriction. Composition of the groups is not reassessed in subsequent periods.
v Accounting for contract modifications and derecognition
An insurance contract is derecognised when it is:
– extinguished (that is, when the obligation specified in the insurance contract expires or is discharged or cancelled); or
– the contract is modified and additional criteria discussed below are met.
When an insurance contract is modified by the local group as a result of an agreement with the counterparties or due to a change in regulations,
the local group treats changes in cash flows caused by the modification as changes in estimates of the fulfilment cash flows (‘FCF’), unless the
conditions for the derecognition of the original contract are met. The local group derecognises the original contract and recognises the modified
contract as a new contract if any of the following conditions are present:
– if the modified terms had been included at contract inception and the local group would have concluded that the modified contract:
– is not within the scope of IFRS 17;
– results in different separable components;
– results in a different contract boundary; or
– belongs to a different group of contracts;
– the original contract represents an insurance contract with direct participation features, but the modified contract no longer meets that
definition, or vice versa; or
– the original contract was accounted for under the PAA, but the modification means that the contract no longer meets the eligibility criteria for
that approach. The local group does not account for any contracts under the PAA.
When a new contract is required to be recognised as a result of modification and it is within the scope of IFRS 17, the new contract is
recognised from the date of modification and is assessed for, amongst other things, contract classification, component separation requirements
and aggregation requirements.
When an insurance contract accounted for under the GMM and VFA is derecognised from within a group of insurance contracts, the local
group :
– adjusts the FCF to eliminate the present value of future cash flows and risk adjustment for non-financial risk relating to the rights and
obligations removed from the group;
– adjusts the CSM (unless the decrease in the FCF is allocated to the loss component of the liability for remaining coverage (‘LRC’) of the
group) in the following manner, depending on the reason for the derecognition:
– if the contract is extinguished, in the same amount as the adjustment to the FCF relating to future service;
– if the contract is transferred to a third party, in the amount of the FCF adjustment in the first bullet point less the premium charged by the
third party; or
– if the original contract is modified resulting in its derecognition, in the amount of the FCF adjustment in the first sub-bullet point adjusted
for the premium that the local group would have charged if it had entered into a contract with equivalent terms as the new contract at the
date of the contract modification, less any additional premium charged for the modification; when recognising the new contract in this
case, the local group assumes such a hypothetical premium as actually received; and
– adjusts the number of coverage units for the expected remaining insurance contract services, to reflect the number of coverage units
removed.
vi Contract Boundary
The local group uses the concept of contract boundary to determine what cash flows should be considered in the measurement of groups of
insurance contracts.
Cash flows are within the boundary of an insurance contract if they arise from the rights and obligations that exist during the period in which the
policyholder is obligated to pay premiums or the local group has a substantive obligation to provide the policyholder with insurance contract
services. A substantive obligation ends when:
– the local group has the practical ability to reprice the risks of the particular policyholder or change the level of benefits so that the price fully
reflects those risks; or
– both of the following criteria are satisfied:
– the local group has the practical ability to reprice the contract or a portfolio of contracts so that the price fully reflects the reassessed risk
of that portfolio; and
– the pricing of premiums up to the date when risks are reassessed does not reflect the risks related to periods beyond the reassessment
date.
In assessing the practical ability to reprice, risks transferred from the policyholder to the local group, such as insurance risk and financial risk, are
considered; other risks, such as lapse or surrender and expense risk, are not included.
Insurance riders represent add-on benefits to an insurance policy. The rider forms part of the single insurance contract with all of the cash flows
within its boundary.
Cash flows outside the insurance contracts boundary relate to future insurance contracts and are recognised when those contracts meet the
recognition criteria.
Cash flows are within the boundaries of investment contracts with DPF if they result from a substantive obligation of the local group to deliver
cash at a present or future date.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 87

For groups of reinsurance contracts held, cash flows are within the contract boundary if they arise from substantive rights and obligations of the
local group that exist during the reporting period in which the local group is compelled to pay amounts to the reinsurer or in which the local
group has a substantive right to receive insurance contract services from the reinsurer.
Cash flows that are not directly attributable to a portfolio of insurance contracts are recognised in other operating expenses as incurred.
vii Insurance acquisition costs
The local group defines acquisition cash flows as cash flows that arise from costs of selling, underwriting and starting a group of insurance
contracts (issued or expected to be issued) and that are directly attributable to the portfolio of insurance contracts to which the group belongs.
Insurance acquisition cash flows are allocated to groups of insurance contracts on a systematic and rational basis. Where applicable, insurance
acquisition cash flows that are directly attributable to a group of insurance contracts are allocated:
– to that group; and
– to groups that will include insurance contracts that are expected to arise from renewals of the insurance contracts in that group. The local
group does not incur the latter.
Insurance acquisition cash flows not directly attributable to a group of contracts but directly attributable to a portfolio of contracts are allocated
to groups of contracts in the portfolio or expected to be in the portfolio.
Before a group of insurance contracts is recognised, the local group could pay (or recognise a liability, applying a standard other than IFRS 17) for
directly attributable acquisition costs to originate them. Such balances are recognised as insurance acquisition cash flows assets within the
carrying amount of insurance contracts issued and are subsequently derecognised (in full or to the extent that insurance contracts expected to
be in the group have been recognised at that date) when respective groups of insurance contracts are recognised and the insurance acquisition
cash flows are included in the local group’s measurement. The amounts allocated to groups of insurance contracts yet to be recognised are
revised at each reporting date, to reflect any changes in assumptions that determine the inputs to the method of allocation used. The local
group does not incur directly attributable acquisition costs before a group of insurance contracts are recognised.
Insurance acquisition cash flows assets not yet allocated to a group are assessed for recoverability if facts and circumstances indicate that the
assets might be impaired. Impairment losses reduce the carrying amount of these assets and are recognised in insurance service expenses.
Previously recognised impairment losses are reversed to the extent that the impairment conditions no longer exist or have improved.
The recoverability assessment is performed in two steps, as follows:
– an impairment loss is recognised to the extent that the carrying amount of each asset for insurance acquisition cash flows exceeds the
expected net cash inflow as determined by the FCF as at initial recognition for the related group of insurance contracts.
– in addition, when insurance acquisition cash flows directly attributable to a group of contracts are allocated to groups that include expected
contract renewals, such insurance acquisition cash flows should not exceed the expected net cash inflow from the expected renewals as
determined by the FCF as at initial recognition for the expected renewals; an impairment loss is recognised for the excess to the extent not
recognised in the first step above.
viii Other pre-recognition cash flows within the contract boundary
Before a group of insurance contracts is recognised, the local group could recognise assets or liabilities for cash flows related to a group of
insurance contracts other than insurance acquisition cash flows, either because of the occurrence of the cash flows or because of the
requirements of another IFRS standard. Cash flows are related to the group of insurance contracts if they would have been included in the FCF
at initial recognition of the group if they had been paid or received after that date. Such assets or liabilities (referred to as ‘other pre-recognition
cash flows’) are included in the carrying amount of the related portfolios of insurance contracts issued or in the carrying amount of the portfolios
of reinsurance contracts held. The local group does not recognised such assets or liabilities.
ix Fulfilment cash flows (‘FCF’)
The fulfilment cash flows comprise the following:
Best estimates of future cash flows
These cash flows include amounts expected to be collected from premiums and payouts for claims, benefits and expenses, and are projected
using a range of scenarios and assumptions in an unbiased way based on the local group’s demographic and operating experience along with
external mortality data where the local group’s own experience data is not sufficiently large in size to be credible.
The estimates of future cash flows:
– are based on a probability-weighted mean of the full range of possible outcomes;
– are determined from the perspective of the local group, provided that the estimates are consistent with observable market prices for market
variables; and
– reflect conditions existing at the measurement date.
The local group estimates certain FCF at the portfolio level or higher and then allocates such estimates to groups of contracts.
Adjustment for the time value of money (i.e. discounting) and financial risks associated with the future cash flows
The estimates of future cash flows are adjusted to reflect the time value of money and the financial risks to derive an expected present value.
The local group generally makes use of stochastic modelling techniques in the estimation for products with options and guarantees.
A bottom-up approach is used to determine the discount rate to be applied to a given set of expected future cash flows. This is derived as the
sum of the risk-free yield and an illiquidity premium. The risk-free yield is determined based on observable market data, where such markets are
considered to be deep, liquid and transparent. When information is not available, management judgement is applied to determine the
appropriate risk-free yield. Illiquidity premiums reflect the liquidity characteristics of the associated insurance contracts.
Risk adjustment for non-financial risk
The risk adjustment reflects the compensation required for bearing the uncertainty about the amount and timing of future cash flows that arises
from non-financial risk. It is calculated as a 75th percentile level of stress over all future years. The level of the stress is determined with
reference to external regulatory stresses and internal economic capital stresses.
Notes on the financial statements

88 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

The full term 75th percentile level of stress corresponds to the 60% (2022: 58%) percentiles based on an ultimate view of risk over all future
years.
The local group does not disaggregate changes in the risk adjustment between insurance service result (comprising insurance revenue and
insurance service expense) and insurance finance income or expenses. All changes are included in insurance service result.
x Measurement models
The variable fee approach (‘VFA’) measurement model is used for most of the contracts issued by the local group, which is mandatory upon
meeting the following eligibility criteria at inception:
– The contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;
– The local group expects to pay to the policyholder a substantial share of the fair value returns on the underlying items. The local group
considers that a substantial share is a majority of returns; and
– The local group expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair
value of the underlying items. The local group considers that a substantial proportion is a majority proportion of change on a present value
probability-weighted average of all scenarios.
– The remaining contracts issued and the reinsurance contracts held are accounted for under the general measurement model (‘GMM’).
xi Initial measurement
CSM and coverage units
The CSM represents the unearned profit and results in no income or expense at initial recognition when the group of contracts is profitable. The
CSM is adjusted at each subsequent reporting period for changes in fulfilment cash flows relating to future service (e.g. changes in non-
economic assumptions, including mortality and morbidity rates). For initial recognition of onerous groups of contracts and when groups of
contracts become onerous subsequently, losses are recognised in ‘Insurance service expense’ immediately.
For groups of contracts measured using the VFA, changes in the local group’s share of the underlying items, and economic experience and
economic assumption changes adjust the CSM, whereas these changes do not adjust the CSM under the GMM, but are recognised in profit or
loss as they arise. However, under the risk mitigation option for VFA contracts, the changes in the fulfilment cash flows and the changes in the
local group’s share in the fair value return on underlying items that the instruments mitigate are not adjusted in CSM but recognised in profit or
loss.
xii Subsequent measurement – groups of contracts measured under the GMM and VFA
The carrying amount at the end of each reporting period of a group of insurance contracts issued is the sum of:
– the Liability for Remaining Coverage (‘LRC’), comprising:
– the FCF related to future service allocated to the group at that date; and
– the CSM of the group at that date; and
– the Liability for Incurred Claims (‘LIC’), comprising the FCF related to past service allocated to the group at the reporting date.
The carrying amount at the end of each reporting period of a group of reinsurance contracts held is the sum of:
– the remaining coverage, comprising:
– the FCF related to future service allocated to the group at that date; and
– the CSM of the group at that date; and
– the incurred claims, comprising the FCF related to past service allocated to the group at the reporting date.
Changes in fulfilment cash flows
The FCF are updated by the local group for current assumptions at the end of every reporting period, using the current estimates of the amount,
timing and uncertainty of future cash flows and of discount rates.
The way in which the changes in estimates of the FCF are treated depends on which estimate is being updated:
– changes that relate to current or past service are recognised in profit or loss; and
– changes that relate to future service are recognised by adjusting the CSM or the loss component within the LRC.
For insurance contracts under the GMM, the following adjustments relate to future service and thus adjust the CSM:
– experience adjustments – arising from premiums received in the period that relate to future service and related cash flows such as insurance
acquisition cash flows and premium-based taxes;
– changes in estimates of the present value of future cash flows in the LRC, except those described in the following paragraph;
– differences between any investment component expected to become payable in the period and the actual investment component that
becomes payable in the period, determined by comparing (i) the actual investment component that becomes payable in a period with (ii) the
payment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that expected
payment before it becomes payable; and
– changes in the risk adjustment for non-financial risk that relate to future service.
Adjustments in the first, second and fourth point above are measured using discount rates determined on initial recognition (the locked-in
discount rates).
For insurance contracts under the GMM, the following adjustments do not adjust the CSM:
– changes in the FCF for the effect of the time value of money and the effect of financial risk and changes thereof;
– changes in the FCF relating to the LIC;
– experience adjustments – arising from premiums received in the period that do not relate to future service and related cash flows, such as
insurance acquisition cash flows and premium-based taxes; and

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 89

– experience adjustments relating to insurance service expenses (excluding insurance acquisition cash flows).
For insurance contracts under the VFA, the following adjustments relate to future service and thus adjust the CSM:
– changes in the amount of the local group’s share of the fair value of the underlying items; and
– changes in the FCF that do not vary based on the returns of underlying items:
– changes in the effect of the time value of money and financial risks including the effect of financial guarantees;
– experience adjustments arising from premiums received in the period that relate to future service and related cash flows, such as
insurance acquisition cash flows and premium-based taxes;
– changes in estimates of the present value of future cash flows in the LRC;
– differences between any investment component expected to become payable in the period and the actual investment component that
becomes payable in the period, determined by comparing (i) the actual investment component that becomes payable in a period with (ii)
the payment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that
expected payment before it becomes payable; and
– changes in the risk adjustment for non-financial risk that relate to future service.
Adjustments from the second until the fifth sub-bullet points above are measured using the current discount rates.
For insurance contracts under the VFA, the following adjustments do not adjust the CSM:
– changes in the obligation to pay the policyholder the amount equal to the fair value of the underlying items;
– changes in the FCF that do not vary based on the returns of underlying items:
– changes in the FCF relating to the LIC; and
– experience adjustments arising from premiums received in the period that do not relate to future service and related cash flows, such as
insurance acquisition cash flows and premium-based taxes; and
– experience adjustments relating to insurance service expenses (excluding insurance acquisition cash flows).
The local group does not have any products with complex guarantees and does not use derivatives as economic hedges of the risks.
Changes to the contractual service margin
For insurance contracts issued, at the end of each reporting period the carrying amount of the CSM is adjusted by the local group to reflect the
effect of the following changes:
– The effect of any new contracts added to the group.
– For contracts measured under the GMM, interest accreted on the carrying amount of the CSM.
– Changes in the FCF relating to future service are recognised by adjusting the CSM. Changes in the FCF are recognised in the CSM to the
extent that the CSM is available. When an increase in the FCF exceeds the carrying amount of the CSM, the CSM is reduced to zero, the
excess is recognised in ‘Insurance service expenses’ and a loss component is recognised within the LRC. When the CSM is zero, changes in
the FCF adjust the loss component within the LRC with correspondence to insurance service expenses. The excess of any decrease in the
FCF over the loss component reduces the loss component to zero and reinstates the CSM.
– The amount recognised as ‘Insurance revenue’ for insurance contract services provided during the period, determined after all other
adjustments above.
For reinsurance contracts held, at the end of each reporting period, the carrying amount of the CSM is adjusted by the local group to reflect the
effect of the following changes:
– The effect of any new contracts added to the group.
– Interest accreted on the carrying amount of the CSM.
– Income recognised in profit or loss when the local group recognises a loss on initial recognition of an onerous group of underlying insurance
contracts or on addition of onerous underlying insurance contracts to that group. A loss-recovery component is established or adjusted within
the remaining coverage for reinsurance contracts held for the amount of income recognised.
– Reversals of a loss-recovery component other than changes in the FCF of reinsurance contracts held.
– Changes in the FCF, to the extent that the change relates to future service, unless the change results from a change in FCF allocated to a
group of underlying insurance contracts that does not adjust the CSM for the group of underlying insurance contracts.
– The amount recognised in profit or loss for insurance contract services received during the period, determined after all other adjustments
above.
Interest accretion on the CSM
Under the GMM, interest is accreted on the CSM using discount rates determined at initial recognition that are applied to nominal cash flows
that do not vary based on the returns of underlying items.
The CSM is systematically recognised in ‘Insurance revenue’ to reflect the insurance contract services provided, based on the coverage units of
the group of contracts. Coverage units are determined by the quantity of benefits and the expected coverage period of the contracts.
The local group identifies the quantity of the benefits provided as follows:
– For insurance coverage - based on the expected net policyholder insurance benefit at each period after allowance for decrements, where net
policyholder insurance benefit refers to the amount of sum assured less the fund value or surrender value.
– For investment services (including both investment-return service and investment-related service) - based on a constant measure basis
which reflects the provision of access for the policyholder to the facility.
For contracts that provide both insurance coverage and investment services, coverage units are weighted according to the expected present
value of the future cash outflows for each service.
For reinsurance contracts held, the CSM is released to profit or loss as insurance contract services are received from the reinsurer in the period.
Notes on the financial statements

90 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Onerous contracts – Loss component
When adjustments to the CSM exceed the amount of the CSM, the group of contracts becomes onerous and the local group recognises the
excess in insurance service expenses, and it records the excess as a loss component of the LRC.
Decreases in the FCF relating to future service in subsequent periods reduce the remaining loss component and reinstate the CSM after the
loss component is reduced to zero. Increases in the FCF relating to future service in subsequent periods increase the loss component.
A loss-recovery component is established or adjusted within the asset for remaining coverage for reinsurance contracts held for the amount of
income recognised in profit or loss when the local group recognises a loss on initial recognition of an onerous group of underlying insurance
contracts or on addition of onerous underlying insurance contracts to that group.
Subsequently, the loss-recovery component is adjusted to reflect changes in the loss component of an onerous group of underlying insurance
contracts. The loss-recovery component is further adjusted, if required, to ensure that it does not exceed the portion of the carrying amount of
the loss component of the onerous group of underlying insurance contracts that the local group expects to recover from the group of
reinsurance contracts held.
xiii Insurance service results
Insurance revenue reflects the consideration to which the local group expects to be entitled in exchange for the provision of coverage and other
insurance contract services (excluding any investment components). Insurance service expenses comprise the incurred claims and other
incurred insurance service expenses (excluding any investment components), and losses on onerous groups of contracts and reversals of such
losses.
Reinsurance expenses are recognised similarly to insurance revenue. The amount of reinsurance expenses recognised in the reporting period
depicts the transfer of received insurance contract services.
xiv Insurance finance income and expenses
Insurance finance income or expenses comprise the change in the carrying amount of the group of insurance contracts arising from the effects
of the time value of money, financial risk and changes therein. For VFA contracts, changes in the fair value of underlying items (excluding
additions and withdrawals) are recognised in insurance finance income or expenses.
(j)Provisions
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.
(k)Lease liabilities
Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease
payments:
– payments, less any lease incentives receivable;
– amounts expected to be payable by the local group under residual value guarantees;
– the exercise price of a purchase option if the local group is reasonably certain to exercise that option; and
– payments of penalties for terminating the lease, if the lease term reflects the local group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the
case for leases in the local group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to
borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms,
security and conditions.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each period.
(l)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.
(m)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

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 91

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.
(n)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.
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.
(o) Non-interest income
i Net 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.
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.
Where the local group offers a package of services that contains multiple non-distinct performance obligations, such as those included in
account service packages, the promised services are treated as a single performance obligation. If a package of services contains distinct
performance obligations, the corresponding transaction price is allocated to each performance obligation based on the estimated stand-alone
selling prices.
ii Dividend 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.
iii Net income/(expense) from assets and liabilities of insurance business measured at fair value through profit or loss
Net income from assets and liabilities of insurance business measured at fair value through profit or loss includes:
– all gains and losses from changes in the fair value of financial assets mandatorily measured at fair value through profit and loss and financial
liabilities designated at fair value through profit or loss attributable to insurance and investment contracts; and
– interest and dividend income in respect of financial assets mandatorily measured at fair value through profit or loss.
The accounting policies for ‘Insurance service result’ and ‘Insurance finance (expense)/income’ are disclosed in Note 3(i).
iv Net trading income
The line item includes income from foreign exchange activities and net income from derivatives such as cross currency swaps and forward
exchange contracts.
Notes on the financial statements

92 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

(p)Employee benefits
i Contributions 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.
ii Post employment and other long-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’.
iii Termination 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.
iv Share-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 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.
(q)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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 93

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.
(r)Cash and cash equivalents
Cash and cash equivalents comprise unencumbered 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.
(s)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.

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, investment
securities, derivative financial instruments, amounts due to banks and customers, liabilities under investment contracts and insurance contract
liabilities.
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.
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 and the
governance arrangement in relation to life insurance business are described in Note 4(f).
With the exception of the financial instruments relating to the insurance subsidiary company, the only major difference between the local group
consolidated position and the bank’s financial position relate to cash balances held by the asset management subsidiary with the bank,
amounting to €2,553,000 as at 31 December 2023 (2022: €2,492,000). These balances, which are eliminated upon consolidation at local group
level, are classified under ‘Customer accounts’ in the bank’s financial statements. The risks arising from financial instruments relating to the
asset management subsidiary company are deemed to be insignificant. Accordingly, with the exception of the risks attributable to the life
insurance business which is disclosed in Note 4(f), the tables and figures presented within Note 4 reflect information about the financial risk
management of the bank, excluding the asset management subsidiary.
(b)Credit risk excluding Insurance credit risk which is reported under Note 4(f)
i Credit 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.
Notes on the financial statements

94 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 level of economic uncertainty remained elevated during the financial year ended 31 December 2023. This is primarily driven by significant
inflationary pressures across the world, triggered during 2022 as a result of widespread supply chain disruptions experienced as the world
economy recovered from the impacts of the pandemic. These inflationary pressures continued to be experienced throughout the financial year
ended 31 December 2023. In order to curb the spiralling effect of inflationary pressures, the European Central Bank (‘ECB’) and other national
central banks applied monetary policy tools at their disposal by increasing interest rates to manage demand, resulting in a rapid sequence of
announced increases in interest rates over a period of 12 months. The combined effect of high inflation rates and an elevated interest rate
environment triggered a slowdown in economic growth, with lower levels of private consumption as a result of a steep rise in commodity prices
as well as subdued investment as a result of high interest rates.
In addition to the above, the ongoing developments in the global geopolitical environment exacerbate the level of economic uncertainty being
experienced. In particular, the protracted military conflict between Russia and Ukraine, which started in February 2022, as well as the escalation
of geopolitical tensions between Israel and Hamas in the Middle East in October 2023, contributed to the overall level of economic uncertainty.
Locally, the government has implemented and continues to retain price-mitigating fiscal measures to support households and firms, with energy
prices in Malta remaining fixed and the production of essential foodstuffs being subsidised. In this respect, whilst significantly higher than both
national targets and previous year levels, inflation rates in Malta remain below those observed in most euro area countries. Corrections to
national salary levels were also implemented through the national Cost Of Living Adjustment (’COLA’) mechanism.
As a result, economic uncertainty continues to prevail especially in view of the elevated interest rate environment and inflationary pressures,
partially mitigated by government support measures. This uncertainty impacts the business model, income levels and/or cash flow generation
capacity of a significant portion of the local group's customers. This has impacted the performance of the bank’s expected credit loss models,
requiring enhanced monitoring of model outputs and the use of alternative mechanisms or controls.
Sectorial reviews are performed on a periodic basis to identify customers or groups of customers who are experiencing, or are likely to
experience, financial difficulty as a result of the ongoing macroeconomic challenges. These sectorial reviews are monitored on a regular basis in
order to assess ongoing developments, such as announced monetary policy changes, inflation rates, together with the impact of government
support measures.
With respect to wholesale exposures, during 2023, the local group performed a risk assessment in respect of industries / sectors deemed to be
most susceptible to inflationary pressures to identify borrowers deemed to be at risk of a Significant Increase in Credit Risk (‘SICR’) or
Unlikeliness-To-Pay (‘UTP’) trigger event. In addition, the local group also performed an assessment in respect of the most material borrowers
within each industry / sector serviced by the local group in order to assess the potential impact of shocks applied to these borrowers’ profit
generation capacity, thereby capturing the risk that the debt servicing capacity is depleted by increases in the cost base as well as increases in
interest rates. The bank assessed and individually rated ‘at risk’ borrowers 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).
In relation to retail exposures, the bank resorts more to portfolio measures or reviews in respect of groups of exposures exhibiting shared risk
characteristics. In this respect, during 2023, focus continued to be placed on performing affordability assessments on customers deemed to be
more susceptible to these conditions.
At 31 December 2023, as a result of the elevated level of economic uncertainty, a degree of caution has been reflected through the use of
management judgemental adjustments.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 95

Further information in respect of macroeconomic forecasts and management judgemental adjustments reflected within the ECL calculations is
provided in Note 4(b)(iii) within the section entitled ‘Forward-looking information incorporated in the ECL model’.
In addition, the local group recognises that the physical impacts of climate change and the transition to net zero economy can create significant
financial risks for its customers which may impact the credit risk attributable to its lending portfolios.
During the financial year ended 31 December 2023, the local group continued to integrate climate risk into its credit risk management policies
and procedures, with physical and transition risks considered to be the key climate risks impacting credit risk.
For transition risk, the local group monitors the exposure of the wholesale lending portfolio to six high transition risk sectors. As at 31 December
2023, the overall exposure to the six high transition risk sectors within the wholesale portfolio was 20.8%.
Relationship managers engage with wholesale clients through a transition engagement questionnaire (‘TEQ‘) (formally transition risk
questionnaire (‘TRQ’)) to gather and assess information about the alignment of clients’ business models to net zero and their exposure to
physical and transition risk. Responses to the questionnaire are used to create a climate risk score for prioritised customers.
The local group’s credit policies require that relationship managers comment on climate risk factors in credit applications for new money
requests and annual credit reviews. In addition, manual CRR overrides are required if climate is deemed to have a material impact on credit risk,
unless already captured under the original CRR.
In addition, the local group performs an internal risk assessment to assess physical risk in respect of secured lending portfolios, specifically
wholesale lending and retail mortgage lending. Based on this assessment, the local group identifies exposures which are sensitive to physical
risk events by reference to geographical locations deemed to be more susceptible to an immediate one-metre increase in sea level in Malta,
taking into consideration locations in proximity to the island’s low shoreline, as well as flood risk, primarily due to surface water run-off.
Key challenges for further embedding climate risk into credit risk management relate to the availability of adequate risk data to assess impacts
to clients. Whilst recognising that it is a long-term iterative process, the local group aims to regularly review the approach to increase coverage,
incorporate maturing data, climate analytics capabilities, frameworks and tools and respond to emerging industry best practice and climate risk
regulations.
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 and other 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.

| 2023 | 2022
| €000 | €000
Balances with Central Bank of Malta and Treasury Bills | 1,643,057 | 1,553,848
Items in course of collection from other banks | 8,427 | 6,921
Loans and advances to banks | 716,140 | 726,217
Loans and advances to customers | 3,083,843 | 3,175,167
Debt instruments measured at fair value through other comprehensive income | 456,930 | 637,709
Debt instruments measured at amortised cost | 858,886 | 367,024
Accrued income and other assets | 21,910 | 18,174
Off-balance sheet: |  |
– financial guarantees | 10,279 | 11,787
– performance guarantees and similar contracts | 174,290 | 155,529
– loan and other credit related commitments | 838,659 | 842,320
At 31 Dec | 7,812,421 | 7,494,696

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. FVPL):

| 2023 | 2022
| €000 | €000
Derivatives | 13,577 | 25,745

As explained in further detail in Note 44, performance guarantees and similar contracts are deemed to fall outside the scope of the impairment
requirements emanating from IFRS 9. In this respect, the figures and tables presented throughout the rest of this note exclude such contracts.
Notes on the financial statements

96 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 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 presented on the next page, 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.
All tables and figures within the rest of Note 4(b) on the following pages exclude ‘performance guarantees and similar contracts’ in view of the
fact that the instruments are not subject to the impairment requirements emanating from IFRS 9, as described in more detail in Note 44.
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.

| 2023 | 2022
| 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 | 3,129,321 | (45,478) | 3,222,901 | (47,734)
– personal | 2,214,220 | (23,754) | 2,286,234 | (24,710)
– corporate and commercial | 855,362 | (19,931) | 872,673 | (20,669)
– non-bank financial institutions | 59,739 | (1,793) | 63,994 | (2,355)
Loans and advances to banks at amortised cost | 716,140 | — | 726,218 | (1)
Other financial assets measured at amortised cost | 2,151,423 | (4,723) | 1,709,271 | (5,596)
– balances at central banks | 1,257,498 | (21) | 1,269,367 | (13)
– items in the course of collection from other banks | 8,427 | — | 6,921 | —
– debt instruments measured at amortised cost | 858,915 | (29) | 367,042 | (18)
– Treasury Bills measured at amortised cost | — | — | 42,203 | (1)
– accrued income and other assets | 26,583 | (4,673) | 23,738 | (5,564)
Total gross carrying amount on balance sheet | 5,996,884 | (50,201) | 5,658,390 | (53,331)
Loan and other credit-related commitments | 838,659 | (1,230) | 842,320 | (1,173)
– personal | 293,459 | (28) | 359,233 | (26)
– corporate and commercial (including non-bank financial institutions) | 533,594 | (1,202) | 480,711 | (1,147)
– banks | 11,606 | — | 2,376 | —
Financial guarantees | 10,279 | (88) | 11,787 | (149)
– personal | 200 | — | 200 | —
– corporate and commercial (including non-bank financial institutions) | 10,079 | (88) | 11,587 | (149)
Total nominal amount off balance sheet | 848,938 | (1,318) | 854,107 | (1,322)
Total at 31 Dec | 6,845,822 | (51,519) | 6,512,497 | (54,653)
| Fair value | Allowance for ECL | Fair value | Allowance for ECL
| €000 | €000 | €000 | €000
Debt instruments measured at fair value through other comprehensive income | 456,930 | (38) | 637,709 | (60)
Treasury Bills measured at fair value through other comprehensive income | 385,580 | (11) | 242,292 | (4)
Total at 31 Dec | 842,510 | (49) | 880,001 | (64)

ii Concentration 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 and at amortised cost
The bank’s holdings of debt securities are spread across a range of issuers in both 2023 and 2022, with the exception of 34% (2022: 48%)
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 €13,577,000 at 31 December 2023 (2022: €25,745,000), with €13,050,000 (2022: €24,086,000) transacted with HSBC
Group and €527,000 (2022: €1,659,000) transacted with other commercial counterparties.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 97

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.
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 Dec 2023 |  |  |  |
Personal lending |  |  |  |
– first lien residential mortgages | 2,040,495 | 65.2 | 42,833 | 2.1
– other personal lending | 173,725 | 5.6 | 7,883 | 4.5
Wholesale lending |  |  |  |
– commercial real estate and other property related | 54,240 | 1.7 | 6,131 | 11.3
– state-owned entities | 263,784 | 8.4 | — | —
– other commercial | 597,077 | 19.1 | 43,515 | 7.3
Total | 3,129,321 | 100 | 100,362 | 3.2
At 31 Dec 2022 |  |  |  |
Personal lending |  |  |  |
– first lien residential mortgages | 2,100,009 | 65.2 | 53,033 | 2.5
– other personal lending | 186,225 | 5.8 | 10,119 | 5.4
Wholesale lending |  |  |  |
– commercial real estate and other property related | 182,077 | 5.6 | 32,852 | 18.0
– state-owned entities | 303,387 | 9.4 | — | —
– other commercial | 451,203 | 14.0 | 23,006 | 5.1
Total | 3,222,901 | 100 | 119,010 | 3.7

The amount of gross loans and advances to customers of the bank stood at €3,129,321,000 at 31 December 2023 (2022: €3,222,901,000). As at
31 December 2023 and 31 December 2022, there were no loans and advances payable to the bank by any of its subsidiaries.
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’ comprises 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

98 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

| Gross on- balance sheet exposure |  | Collateral |  | Net maximum exposure
| Residential property | Commercial property | Securities/ cash | Other
| €000 | €000 | €000 | €000 | €000 | €000
At 31 Dec 2023 |  |  |  |  |  |
Electricity, gas, water supply and waste management | 82,369 | — | 2 | 3 | 36,725 | 45,639
Accommodation and food service | 51,006 | 1,330 | 34,716 | — | — | 14,960
Construction, real estate activities | 101,552 | 7,348 | 72,792 | 6,505 | 5,079 | 9,828
Wholesale and retail trade and repairs | 141,491 | 7,087 | 62,392 | 3,077 | 52 | 68,883
Services | 431,885 | 6,725 | 87,716 | 5,640 | 219,004 | 112,800
Manufacturing, agriculture and fishing | 107,721 | 7,047 | 30,995 | 919 | 45 | 68,715
Households and individuals | 2,213,297 | 2,102,086 | 238 | 1,917 | 559 | 108,497
| 3,129,321 | 2,131,623 | 288,851 | 18,061 | 261,464 | 429,322
At 31 Dec 2022 |  |  |  |  |  |
Electricity, gas, water supply and waste management | 111,046 | 62 | 1 | 3,325 | 53,736 | 53,922
Accommodation and food service | 79,168 | 784 | 44,618 | 6 | — | 33,760
Construction, real estate activities | 108,445 | 10,250 | 66,495 | 1,919 | 5,453 | 24,328
Wholesale and retail trade and repairs | 179,956 | 4,577 | 42,785 | 3,744 | 18,162 | 110,688
Services | 396,817 | 4,902 | 84,126 | 8,257 | 205,981 | 93,551
Manufacturing, agriculture and fishing | 62,196 | 2,948 | 19,574 | 317 | 779 | 38,578
Households and individuals | 2,285,273 | 2,153,777 | 305 | 10,106 | 4,570 | 116,515
| 3,222,901 | 2,177,300 | 257,904 | 27,674 | 288,681 | 471,342

iii Credit 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 50% | 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 50% and 90% | 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 90% and 100% Not past due with unperfected collateral | 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, history of delinquency in prior 12 months, or performing forborne | 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 2023 | 99

Distribution of financial instruments by credit quality
| As at 31 Dec 2023
| 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: | 997,889 | 1,174,816 | 704,572 | 151,682 | 100,362 | 3,129,321 | (45,478) | 3,083,843
– personal | 679,133 | 1,161,636 | 222,088 | 100,647 | 50,716 | 2,214,220 | (23,754) | 2,190,466
– corporate and commercial | 318,756 | 5,625 | 438,349 | 51,035 | 41,597 | 855,362 | (19,931) | 835,431
– non-bank financial institutions | — | 7,555 | 44,135 | — | 8,049 | 59,739 | (1,793) | 57,946
Loans and advances to banks held at amortised cost | 716,140 | — | — | — | — | 716,140 | — | 716,140
Other financial assets held at amortised cost: |  |  |  |  |  |  |  |
Balances at central banks | 1,257,498 | — | — | — | — | 1,257,498 | (21) | 1,257,477
Items in the course of collection from other banks | 8,427 | — | — | — | — | 8,427 | — | 8,427
Debt instruments measured at amortised cost | 858,915 | — | — | — | — | 858,915 | (29) | 858,886
Accrued income and other assets | 11,676 | 1,984 | 4,135 | 790 | 7,998 | 26,583 | (4,673) | 21,910
– endorsements and acceptances | — | — | 240 | — | — | 240 | (1) | 239
– accrued income | 11,676 | 1,984 | 3,895 | 790 | 7,998 | 26,343 | (4,672) | 21,671
Total gross carrying amount on balance sheet | 3,850,545 | 1,176,800 | 708,707 | 152,472 | 108,360 | 5,996,884 | (50,201) | 5,946,683
Percentage of total credit quality | 64.2% | 19.6% | 11.8% | 2.6% | 1.8% | 100% |  |
Loan and other credit-related commitments | 377,203 | 93,190 | 342,857 | 21,341 | 4,068 | 838,659 | (1,230) | 837,429
Financial guarantees | 685 | 1 | 7,320 | 2,273 | — | 10,279 | (88) | 10,191
Total nominal amount off balance sheet | 377,888 | 93,191 | 350,177 | 23,614 | 4,068 | 848,938 | (1,318) | 847,620
At 31 Dec 2023 | 4,228,433 | 1,269,991 | 1,058,884 | 176,086 | 112,428 | 6,845,822 | (51,519) | 6,794,303
|  | 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 | 456,930 | — | — | — | — | 456,930 | (38)
Treasury Bills measured at fair value through other comprehensive income | 385,580 | — | — | — | — | 385,580 | (11)
At 31 Dec 2023 |  | 842,510 | — | — | — | — | 842,510 | (49)

Notes on the financial statements

100 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Distribution of financial instruments by credit quality (continued)
| As at 31 Dec 2022
| 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: | 938,415 | 1,188,418 | 743,387 | 233,671 | 119,010 | 3,222,901 | (47,734) | 3,175,167
– personal | 637,076 | 1,186,794 | 294,342 | 104,870 | 63,152 | 2,286,234 | (24,710) | 2,261,524
– corporate and commercial | 301,326 | 1,624 | 396,841 | 121,996 | 50,886 | 872,673 | (20,669) | 852,004
– non-bank financial institutions | 13 | — | 52,204 | 6,805 | 4,972 | 63,994 | (2,355) | 61,639
Loans and advances to banks held at amortised cost | 726,218 | — | — | — | — | 726,218 | (1) | 726,217
Other financial assets held at amortised cost: |  |  |  |  |  |  |  |
Balances at central banks | 1,269,367 | — | — | — | — | 1,269,367 | (13) | 1,269,354
Items in the course of collection from other banks | 6,921 | — | — | — | — | 6,921 | — | 6,921
Debt instruments measured at amortised cost | 367,042 | — | — | — | — | 367,042 | (18) | 367,024
Treasury Bills measured at amortised cost | 42,203 | — | — | — | — | 42,203 | (1) | 42,202
Accrued income and other assets | 7,138 | 2,169 | 4,375 | 1,300 | 8,756 | 23,738 | (5,564) | 18,174
– endorsements and acceptances | — | — | 1,500 | — | — | 1,500 | (5) | 1,495
– accrued income | 7,138 | 2,169 | 2,875 | 1,300 | 8,756 | 22,238 | (5,559) | 16,679
Total gross carrying amount on balance sheet | 3,357,304 | 1,190,587 | 747,762 | 234,971 | 127,766 | 5,658,390 | (53,331) | 5,605,059
Percentage of total credit quality | 59.3% | 21.0% | 13.2% | 4.2% | 2.3% | 100% |  |
Loan and other credit-related commitments | 404,974 | 84,587 | 295,629 | 48,531 | 8,599 | 842,320 | (1,173) | 841,147
Financial guarantees | 2,276 | — | 7,170 | 2,321 | 20 | 11,787 | (149) | 11,638
Total nominal amount off balance sheet | 407,250 | 84,587 | 302,799 | 50,852 | 8,619 | 854,107 | (1,322) | 852,785
At 31 Dec 2022 | 3,764,554 | 1,275,174 | 1,050,561 | 285,823 | 136,385 | 6,512,497 | (54,653) | 6,457,844
|  | 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 | 637,709 | — | — | — | — | 637,709 | (60)
Treasury Bills measured at fair value through other comprehensive income | 242,292 | — | — | — | — | 242,292 | (4)
At 31 Dec 2022 |  | 880,001 | — | — | — | — | 880,001 | (64)

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 forborne 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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 101

Forborne 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.
Stage 2 loans are those exposures which have had a significant increase in credit risk since initial recognition. The analysis of credit risk depends
on the type of product, the characteristics of the financial instrument and the borrower and, as such, it is not possible to provide a single set of
criteria that will determine what is considered to be a SICR since 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 SICR when 30 days past due. A
comprehensive description of the bank’s staging methodology is provided in Note 3(b)(iv) of these financial statements.
As referred to previously, existing geopolitical instabilities as well as the current inflationary and elevated interest rate environment and the
consequential economic conditions continue to pose a heightened level of uncertainty, particularly with respect to the identification of
customers that would have experienced a SICR or that exhibit UTP characteristics.
The bank utilises segmentation techniques for the purposes of identifying indicators of SICR within both wholesale and retail portfolios. The
bank performs periodic assessments to determine whether the current macroeconomic circumstances may transform into long-term borrower
financial difficulties, thereby potentially requiring a downgrade of exposures to stage 2 or stage 3 to reflect the level of change in credit risk as
appropriate. This assessment is performed on a periodic basis at borrower level in respect of wholesale exposures, whereas the assessment in
respect of retail exposures is performed by reference to shared credit quality characteristics, including assumed levels of net disposable income
by reference to age and marital status.
In respect of individually significant loans within the wholesale portfolio, during 2023 the bank focused on those borrowers that are deemed to
be more susceptible to the current inflationary and elevated interest rate environment. These exposures were assessed 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 were 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.
In addition, the bank utilises management judgemental assumptions in respect of its retail mortgage portfolio designed to estimate the impact
of the delayed identification of SICR events resulting from the current inflationary and elevated interest rate environment, which is reflected
within the ECL calculations as detailed in Note 4(b)(iii) within the section entitled ‘Forward-looking information incorporated in the ECL model’.

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 | 2,874,317 | 154,642 | 100,362 | 3,129,321 | (14,662) | (13,463) | (17,353) | (45,478) | 0.5 | 8.7 | 17.3 | 1.5
– personal | 2,062,416 | 101,088 | 50,716 | 2,214,220 | (7,719) | (8,433) | (7,602) | (23,754) | 0.4 | 8.3 | 15.0 | 1.1
– corporate and commercial | 760,211 | 53,554 | 41,597 | 855,362 | (6,241) | (5,030) | (8,660) | (19,931) | 0.8 | 9.4 | 20.8 | 2.3
– non-bank financial institutions | 51,690 | — | 8,049 | 59,739 | (702) | — | (1,091) | (1,793) | 1.4 | — | 13.6 | 3.0
Loans and advances to banks at amortised cost | 716,140 | — | — | 716,140 | — | — | — | — | — | — | — | —
Other financial assets measured at amortised cost | 2,142,466 | 959 | 7,998 | 2,151,423 | (50) | (1) | (4,672) | (4,723) | — | 0.1 | 58.4 | 0.2
Loan and other credit-related commitments | 799,788 | 34,803 | 4,068 | 838,659 | (751) | (58) | (421) | (1,230) | 0.1 | 0.2 | 10.3 | 0.1
– personal | 291,001 | 2,276 | 182 | 293,459 | (28) | — | — | (28) | — | — | — | —
– corporate and commercial (including non- bank financial institutions) | 497,181 | 32,527 | 3,886 | 533,594 | (723) | (58) | (421) | (1,202) | 0.1 | 0.2 | 10.8 | 0.2
– banks | 11,606 | — | — | 11,606 | — | — | — | — | — | — | — | —
Financial guarantees | 10,029 | 250 | — | 10,279 | (66) | (22) | — | (88) | 0.7 | 8.8 | — | 0.9
– personal | 200 | — | — | 200 | — | — | — | — | — | — | — | —
– corporate and commercial (including non- bank financial institutions) | 9,829 | 250 | — | 10,079 | (66) | (22) | — | (88) | 0.7 | 8.8 | — | 0.9
At 31 Dec 2023 | 6,542,740 | 190,654 | 112,428 | 6,845,822 | (15,529) | (13,544) | (22,446) | (51,519) | 0.2 | 7.1 | 20.0 | 0.8

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. Past due financial instruments are those loans where customers have
failed to make payments in accordance with the contractual terms of their facilities.
Notes on the financial statements

102 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Stage 2 days past due analysis at 31 December 2023 (continued)
| 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: | 154,642 | 150,421 | 4,221 | (13,463) | (12,944) | (519) | 8.7 | 8.6 | 12.3
– personal | 101,088 | 97,245 | 3,843 | (8,433) | (7,923) | (510) | 8.3 | 8.1 | 13.3
– corporate and commercial | 53,554 | 53,176 | 378 | (5,030) | (5,021) | (9) | 9.4 | 9.4 | 2.4
Other financial assets measured at amortised cost | 959 | 936 | 23 | (1) | (1) | — | 0.1 | 0.1 | —

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 | 2,812,374 | 291,517 | 119,010 | 3,222,901 | (10,177) | (18,744) | (18,813) | (47,734) | 0.4 | 6.4 | 15.8 | 1.5
– personal | 2,112,941 | 110,141 | 63,152 | 2,286,234 | (6,671) | (8,716) | (9,323) | (24,710) | 0.3 | 7.9 | 14.8 | 1.1
– corporate and commercial | 682,367 | 139,420 | 50,886 | 872,673 | (3,272) | (8,168) | (9,229) | (20,669) | 0.5 | 5.9 | 18.1 | 2.4
– non-bank financial institutions | 17,066 | 41,956 | 4,972 | 63,994 | (234) | (1,860) | (261) | (2,355) | 1.4 | 4.4 | 5.2 | 3.7
Loans and advances to banks at amortised cost | 726,218 | — | — | 726,218 | (1) | — | — | (1) | — | — | — | —
Other financial assets measured at amortised cost | 1,698,930 | 1,585 | 8,756 | 1,709,271 | (37) | — | (5,559) | (5,596) | — | — | 63.5 | 0.3
Loan and other credit- related commitments | 760,652 | 73,069 | 8,599 | 842,320 | (379) | (141) | (653) | (1,173) | — | 0.2 | 7.6 | 0.1
– personal | 350,204 | 8,648 | 381 | 359,233 | (26) | — | — | (26) | — | — | — | —
– corporate and commercial (including non-bank financial institutions) | 408,072 | 64,421 | 8,218 | 480,711 | (353) | (141) | (653) | (1,147) | 0.1 | 0.2 | 7.9 | 0.2
– banks | 2,376 | — | — | 2,376 | — | — | — | — | — | — | — | —
Financial guarantees | 11,535 | 232 | 20 | 11,787 | (110) | (39) | — | (149) | 1.0 | 16.8 | — | 1.3
– personal | 200 | — | — | 200 | — | — | — | — | — | — | — | —
– corporate and commercial (including non-bank financial institutions) | 11,335 | 232 | 20 | 11,587 | (110) | (39) | — | (149) | 1.0 | 16.8 | — | 1.3
At 31 Dec 2022 | 6,009,709 | 366,403 | 136,385 | 6,512,497 | (10,704) | (18,924) | (25,025) | (54,653) | 0.2 | 5.2 | 18.3 | 0.8

| 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: | 291,517 | 288,474 | 3,043 | (18,744) | (18,300) | (444) | 6.4 | 6.3 | 14.6
– personal | 110,141 | 107,228 | 2,913 | (8,716) | (8,276) | (440) | 7.9 | 7.7 | 15.1
– corporate and commercial | 139,420 | 139,290 | 130 | (8,168) | (8,164) | (4) | 5.9 | 5.9 | 3.1
– non-bank financial institutions | 41,956 | 41,956 | — | (1,860) | (1,860) | — | 4.4 | 4.4 | —
Other financial assets measured at amortised cost | 1,585 | 1,568 | 17 | — | — | — | — | — | —

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 the 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 2023 | 103

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 | 997,889 | 1,174,816 | 704,572 | 151,682 | 100,362 | 3,129,321 | (45,478) | 3,083,843
– stage 1 | 997,689 | 1,174,611 | 688,863 | 13,154 | — | 2,874,317 | (14,662) | 2,859,655
– stage 2 | 200 | 205 | 15,709 | 138,528 | — | 154,642 | (13,463) | 141,179
– stage 3 | — | — | — | — | 100,362 | 100,362 | (17,353) | 83,009
Loans and advances to banks at amortised cost | 716,140 | — | — | — | — | 716,140 | — | 716,140
– stage 1 | 716,140 | — | — | — | — | 716,140 | — | 716,140
– stage 2 | — | — | — | — | — | — | — | —
– stage 3 | — | — | — | — | — | — | — | —
Other financial assets measured at amortised cost | 2,136,516 | 1,984 | 4,135 | 790 | 7,998 | 2,151,423 | (4,723) | 2,146,700
– stage 1 | 2,136,514 | 1,984 | 3,825 | 143 | — | 2,142,466 | (50) | 2,142,416
– stage 2 | 2 | — | 310 | 647 | — | 959 | (1) | 958
– stage 3 | — | — | — | — | 7,998 | 7,998 | (4,672) | 3,326
Loan and other credit-related commitments | 377,203 | 93,190 | 342,857 | 21,341 | 4,068 | 838,659 | (1,230) | 837,429
– stage 1 | 377,145 | 93,045 | 322,711 | 6,887 | — | 799,788 | (751) | 799,037
– stage 2 | 58 | 145 | 20,146 | 14,454 | — | 34,803 | (58) | 34,745
– stage 3 | — | — | — | — | 4,068 | 4,068 | (421) | 3,647
Financial guarantees | 685 | 1 | 7,320 | 2,273 | — | 10,279 | (88) | 10,191
– stage 1 | 685 | 1 | 7,249 | 2,094 | — | 10,029 | (66) | 9,963
– stage 2 | — | — | 71 | 179 | — | 250 | (22) | 228
– stage 3 | — | — | — | — | — | — | — | —
At 31 Dec 2023 | 4,228,433 | 1,269,991 | 1,058,884 | 176,086 | 112,428 | 6,845,822 | (51,519) | 6,794,303
| 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 | 456,930 | — | — | — | — | 456,930 | (38)
– stage 1 | 456,930 | — | — | — | — | 456,930 | (38)
– stage 2 | — | — | — | — | — | — | —
– stage 3 | — | — | — | — | — | — | —
Treasury Bills measured at fair value through other comprehensive income | 385,580 | — | — | — | — | 385,580 | (11)
– stage 1 | 385,580 | — | — | — | — | 385,580 | (11)
– stage 2 | — | — | — | — | — | — | —
– stage 3 | — | — | — | — | — | — | —
At 31 Dec 2023 |  | 842,510 | — | — | — | — | 842,510 | (49)

Notes on the financial statements

104 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage distribution (continued)
| 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 | 938,415 | 1,188,418 | 743,387 | 233,671 | 119,010 | 3,222,901 | (47,734) | 3,175,167
– stage 1 | 938,172 | 1,188,340 | 671,025 | 14,837 | — | 2,812,374 | (10,177) | 2,802,197
– stage 2 | 243 | 78 | 72,362 | 218,834 | — | 291,517 | (18,744) | 272,773
– stage 3 | — | — | — | — | 119,010 | 119,010 | (18,813) | 100,197
Loans and advances to banks at amortised cost | 726,218 | — | — | — | — | 726,218 | (1) | 726,217
– stage 1 | 726,218 | — | — | — | — | 726,218 | (1) | 726,217
– stage 2 | — | — | — | — | — | — | — | —
– stage 3 | — | — | — | — | — | — | — | —
Other financial assets measured at amortised cost | 1,692,671 | 2,169 | 4,375 | 1,300 | 8,756 | 1,709,271 | (5,596) | 1,703,675
– stage 1 | 1,692,669 | 2,168 | 4,056 | 37 | — | 1,698,930 | (37) | 1,698,893
– stage 2 | 2 | 1 | 319 | 1,263 | — | 1,585 | — | 1,585
– stage 3 | — | — | — | — | 8,756 | 8,756 | (5,559) | 3,197
Loan and other credit-related commitments | 404,974 | 84,587 | 295,629 | 48,531 | 8,599 | 842,320 | (1,173) | 841,147
– stage 1 | 404,962 | 84,517 | 261,886 | 9,287 | — | 760,652 | (379) | 760,273
– stage 2 | 12 | 70 | 33,743 | 39,244 | — | 73,069 | (141) | 72,928
– stage 3 | — | — | — | — | 8,599 | 8,599 | (653) | 7,946
Financial guarantees | 2,276 | — | 7,170 | 2,321 | 20 | 11,787 | (149) | 11,638
– stage 1 | 2,276 | — | 7,147 | 2,112 | — | 11,535 | (110) | 11,425
– stage 2 | — | — | 23 | 209 | — | 232 | (39) | 193
– stage 3 | — | — | — | — | 20 | 20 | — | 20
At 31 Dec 2022 | 3,764,554 | 1,275,174 | 1,050,561 | 285,823 | 136,385 | 6,512,497 | (54,653) | 6,457,844

| 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 | 637,709 | — | — | — | — | 637,709 | (60)
– stage 1 | 637,709 | — | — | — | — | 637,709 | (60)
– stage 2 | — | — | — | — | — | — | —
– stage 3 | — | — | — | — | — | — | —
Treasury Bills measured at fair value through other comprehensive income | 242,292 | — | — | — | — | 242,292 | (4)
– stage 1 | 242,292 | — | — | — | — | 242,292 | (4)
– stage 2 | — | — | — | — | — | — | —
– stage 3 | — | — | — | — | — | — | —
At 31 Dec 2022 | 880,001 | — | — | — | — | 880,001 | (64)

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
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. 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. Exposures which are originated in stage 1 and are later migrated to stage 2 as a result of
identified SICR events during the course of the same financial year are also presented in this line item.
A decrease in credit loss allowances amounting to €14.4 million during 2022 was primarily attributable to assets written off amounting to €15.2
million. Further ECL reductions were driven by significant repayments effected during the year leading to reductions in credit loss allowances
amounting to €4.9 million, particularly in respect of stage 2 and stage 3 exposures. 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 2022 amounting to €5.1 million and €0.6 million, respectively. The former was largely driven by the redevelopment of the
model used by the bank to estimate ECLs in respect of the retail mortgage portfolio, which comprised a refreshed segmentation approach for
staging purposes, resulting in the migration of significant balances from stage 1 to stage 2, with lifetime ECLs being calculated in respect of
these balances.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 105

During the financial year ended 31 December 2023, an ECL release amounting to €3.2 million was primarily driven by migrations of exposures,
primarily from stage 2 to stage 1, as well as significant net repayments during the year amounting to €108.2 million, resulting in decreases in
credit loss allowances amounting to €2.4 million and €5.1 million respectively. In addition, assets written off during the year amounted to €0.6
million.
Changes in risk parameters during the financial year ended 31 December 2023 resulted in a net increase in credit loss allowances amounting to
€5.0 million in respect of exposures classified across all three stages. The ECL increase in respect of stage 3 exposures is attributable to higher
LGDs applied in respect of retail mortgage exposures which have been classified as defaulted for a number of years, and deemed to be
unrecoverable. The increase in credit loss allowances in respect of exposures classified within stages 1 and 2 are primarily attributable to an
increase in discount rates used in the estimation of the LGD parameter as a result of the elevated interest rate environment being experienced.
This was partially offset by an improvement in PDs as a result of macroeconomic scenarios which are more favourable compared to the ones
applicable as at 31 December 2022.
During the financial year ended 31 December 2022, a management judgemental adjustment amounting to €5.1 million, designed to capture the
potential impact of elevated inflation rates and the increasing interest rate environment on the affordability of mortgage exposures, was
reflected in the ECL calculation of retail mortgage exposures classified in stage 1 as at 31 December 2022.
This adjustment was retained during the financial year ended 31 December 2023 in view of the fact that the emergence of increases in credit
risk as a result of the above-mentioned risks within the bank’s lending portfolios might be further delayed as a result of the government support
measures implemented and maintained by the Maltese Government. This resulted in a marginal release in the management judgemental
adjustment amounting to €0.1 million during the financial year ended 31 December 2023.
The movements in modelled forward-looking risk parameters (PDs and LGDs), reflecting updated macroeconomic scenarios used to capture the
prevailing level of economic uncertainty in the modelling of credit loss allowances, as well as movements in the management judgemental
adjustments, are described in more detail in Note 4(b)(iii) – Forward-looking information incorporated in the ECL model.

| 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
At 1 Jan 2023 | 3,590,772 | (10,671) | 366,403 | (18,924) | 136,385 | (25,025) | 4,093,560 | (54,620)
Transfers of financial instruments | 134,477 | (7,566) | (134,836) | 6,602 | 359 | 964 | — | —
– transfers from stage 1 to stage 2 | (61,515) | 317 | 61,515 | (317) | — | — | — | —
– transfers from stage 2 to stage 1 | 197,343 | (7,567) | (197,343) | 7,567 | — | — | — | —
– transfers from stage 3 | 1,827 | (338) | 5,284 | (1,007) | (7,111) | 1,345 | — | —
– transfers to stage 3 | (3,178) | 22 | (4,292) | 359 | 7,470 | (381) | — | —
Net remeasurement of ECL arising from stage transfers | — | 5,495 | — | (2,327) | — | (719) | — | 2,449
Changes in risk parameters | — | (2,147) | — | (2,048) | — | (803) | — | (4,998)
Net new and further lending/repayments | (43,504) | (590) | (40,913) | 3,153 | (23,749) | 2,570 | (108,166) | 5,133
Assets written off | — | — | — | — | (567) | 567 | (567) | 567
At 31 Dec 2023 | 3,681,745 | (15,479) | 190,654 | (13,544) | 112,428 | (22,446) | 3,984,827 | (51,469)
ECL change for the year |  |  |  |  |  |  |  | 3,151
Assets written off |  |  |  |  |  |  |  | (567)
Change in expected credit losses excluding effect of write-offs |  |  |  |  |  |  |  | 2,584
Recoveries |  |  |  |  |  |  |  | 1,466
Other |  |  |  |  |  |  |  | 532
Change in expected credit losses and other credit impairment charges |  |  |  |  |  |  |  | 4,582

Changes in expected credit losses for the period comprise the reclassification of the discount unwind element to interest income, amounting to €0.5m for
the year ended 31 December 2023 and included in ‘Other’ along with the effects of foreign exchange adjustments in the above reconciliation.

| At 31 Dec 2023 | 12 months ended 31 Dec 2023
| Gross carrying/ nominal amount | Allowance for ECL | ECL (charge)/ release
| €000 | €000 | €000
As above | 3,984,827 | (51,469) | 4,582
Balances at central banks | 1,257,498 | (21) | (8)
Loans and advances to banks measured at amortised cost | 716,140 | — | 1
Debt instruments and Treasury Bills measured at amortised cost | 858,915 | (29) | (10)
Items in course of collection | 8,427 | — | —
Accrued interest on debt instruments and other accrued income | 8,409 | — | —
Loan and other credit related commitments - banks | 11,606 | — | —
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied through the Income Statement | 6,845,822 | (51,519) | 4,565
Debt instruments and Treasury Bills measured at fair value through other comprehensive income | 842,510 | (49) | 15
Total allowance for ECL/total income statement ECL release for the year | N/A | (51,568) | 4,580

Notes on the financial statements

106 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

| 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
At 1 Jan 2022 | 3,694,260 | (15,252) | 337,784 | (16,042) | 192,459 | (37,690) | 4,224,503 | (68,984)
Transfers of financial instruments: | (74,149) | (428) | 86,184 | (1,752) | (12,035) | 2,180 | — | —
– transfers from stage 1 to stage 2 | (105,626) | 563 | 105,626 | (563) | — | — | — | —
– transfers from stage 2 to stage 1 | 33,571 | (734) | (33,571) | 734 | — | — | — | —
– transfers from stage 3 | 3,168 | (284) | 20,652 | (2,359) | (23,820) | 2,643 | — | —
– transfers to stage 3 | (5,262) | 27 | (6,523) | 436 | 11,785 | (463) | — | —
Net remeasurement of ECL arising from stage transfers | — | 899 | — | (5,282) | — | (684) | — | (5,067)
Changes in risk parameters | — | 4,143 | — | 1,826 | — | (6,599) | — | (630)
Net new and further lending/repayments | (29,339) | (33) | (57,565) | 2,326 | (28,835) | 2,564 | (115,739) | 4,857
Assets written off | — | — | — | — | (15,204) | 15,204 | (15,204) | 15,204
At 31 Dec 2022 | 3,590,772 | (10,671) | 366,403 | (18,924) | 136,385 | (25,025) | 4,093,560 | (54,620)
ECL change for the year |  |  |  |  |  |  |  | 14,364
Assets written off |  |  |  |  |  |  |  | (15,204)
Change in expected credit losses excluding effects of write-offs |  |  |  |  |  |  |  | (840)
Recoveries |  |  |  |  |  |  |  | 9,359
Other |  |  |  |  |  |  |  | 1,053
Change in expected credit losses and other credit impairment charges |  |  |  |  |  |  |  | 9,572
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 2022 and included in ‘Other’ along with the effects of foreign exchange adjustments in the above reconciliation.
|  |  |  |  |  | At 31 Dec 2022 | 12 months ended 31 Dec 2022
|  |  |  |  |  | Gross carrying/ nominal amount | Allowance for ECL | ECL (charge)/ release
|  |  |  |  |  | €000 | €000 | €000
As above | 4,093,560 | (54,620) | 9,572
Balances at central banks | 1,269,367 | (13) | (5)
Loans and advances to banks measured at amortised cost | 726,218 | (1) | 1
Debt instruments and Treasury Bills measured at amortised cost | 409,245 | (19) | (19)
Items in course of collection | 6,921 | — | —
Accrued interest on debt instruments and other accrued income | 4,810 | — | —
Loan and other credit related commitments - banks | 2,376 | — | —
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied through the Income Statement | 6,512,497 | (54,653) | 9,549
Debt instruments and Treasury Bills measured at fair value through other comprehensive income | 880,001 | (64) | 12
Total allowance for ECL/total income statement ECL charge for the year | N/A | (54,717) | 9,561

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 107

Credit loss allowances attributable to loans and advances to customers
As explained in further detail in Note 47 ‘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.
The following tables show the allowances for ECL recognised as at 31 December 2023 and 31 December 2022.

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 | 7,741 | 8,410 | 7,602 | 23,753
CMB | 6,921 | 5,053 | 9,751 | 21,725
At 31 Dec 2023 | 14,662 | 13,463 | 17,353 | 45,478
Loan and other credit-related commitments and financial guarantees |  |  |  |
WPB | 28 | — | — | 28
CMB | 789 | 80 | 421 | 1,290
At 31 Dec 2023 | 817 | 80 | 421 | 1,318

Loans and advances to customers |  |  |  |
WPB | 6,682 | 8,705 | 9,320 | 24,707
CMB | 3,495 | 10,039 | 9,493 | 23,027
At 31 Dec 2022 | 10,177 | 18,744 | 18,813 | 47,734
Loan and other credit-related commitments and financial guarantees |  |  |  |
WPB | 26 | — | — | 26
CMB | 463 | 180 | 653 | 1,296
At 31 Dec 2022 | 489 | 180 | 653 | 1,322

The measurement of allowances for ECL and the ECL release/charge for 2023 and 2022 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.
Forborne loans and advances to customers
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 where the obligor is experiencing or about to experience difficulties in meeting its financial commitments. The bank classifies
and reports loans on which concessions have been granted under conditions of credit distress as ‘forborne 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.
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 forborne 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 ‘forborne 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 shown a willingness to repay the borrowing and is expected to be able to meet the revised obligations.
For personal lending, unsecured forborne loans are generally segmented from other parts of the loan portfolio. Expected credit loss
assessments in respect of forborne loans reflect the higher rates of losses typically encountered with forborne loans. For wholesale lending,
forborne 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 forborne loans.
For personal lending, the bank’s credit risk management policy sets out restrictions on the number and frequency of forbearance measures,
together with the minimum period an account must have been opened before any forbearance measures can be considered.
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 forborne 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 forbearance measures, 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 forborne 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, observed over a minimum one-year period, and there are no other indicators of impairment. For wholesale
lending, forborne loans curing to a non-credit impaired status will remain classified as forborne for a minimum of two years from the date that
the exposure is no longer classified as credit impaired.
Notes on the financial statements

108 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

For personal lending, forborne loans maintain the forbearance classification until maturity. Any forbearance measures granted in respect of a
loan already classified as forborne will lead to the customer being classified as credit impaired. Personal loans and advances to customers that
have been identified as forborne retain this designation until maturity or derecognition.
The following table shows the gross carrying amounts of the bank’s holdings of forborne loans and advances to customers by industry sector
and by stage. Unless the conditions for classification as a performing forborne exposure are met, forborne 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.

Forborne 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 | — | 27,605 | 18,060 | 45,665
– other personal lending | — | 3,331 | 2,951 | 6,282
Wholesale |  |  |  |
– corporate and commercial | — | 3,023 | 37,487 | 40,510
– non-bank financial institutions | — | — | 8,044 | 8,044
At 31 Dec 2023 | — | 33,959 | 66,542 | 100,501
Allowance for ECL |  |  |  |
Personal |  |  |  |
– first lien residential mortgages | — | (1,521) | (1,586) | (3,107)
– other personal lending | — | (159) | (316) | (475)
Wholesale |  |  |  |
– corporate and commercial | — | (267) | (6,781) | (7,048)
– non-bank financial institutions | — | — | (1,091) | (1,091)
At 31 Dec 2023 | — | (1,947) | (9,774) | (11,721)
Gross carrying amount |  |  |  |
Personal |  |  |  |
– first lien residential mortgages | — | 27,403 | 23,048 | 50,451
– other personal lending | — | 3,352 | 4,252 | 7,604
Wholesale |  |  |  |
– corporate and commercial | — | 20,314 | 44,469 | 64,783
– non-bank financial institutions | — | 7,473 | 4,972 | 12,445
At 31 Dec 2022 | — | 58,542 | 76,741 | 135,283
Allowance for ECL |  |  |  |
Personal |  |  |  |
– first lien residential mortgages | — | (1,798) | (2,883) | (4,681)
– other personal lending | — | (278) | (516) | (794)
Wholesale |  |  |  |
– corporate and commercial | — | (2,465) | (6,246) | (8,711)
– non-bank financial institutions | — | (584) | (261) | (845)
At 31 Dec 2022 | — | (5,125) | (9,906) | (15,031)

| 2023 | 2022
| €000 | €000
Total forborne loans and advances to customers as a percentage of total gross loans and advances to customers | 3.2% | 4.2%
Interest income recognised in respect of forborne assets | 4,336 | 5,860
Movement in forbearance activity during the year: |  |
At 1 Jan | 135,283 | 183,893
Loans granted forbearance measures during the year | 2,690 | 8,978
Repayments | (37,404) | (49,870)
Amounts written off | (68) | (7,718)
At 31 Dec | 100,501 | 135,283

None of the forborne loans effected during the financial years ended 31 December 2023 and 31 December 2022 were subject to a substantial
modification in cash flows and, as a result, none of the renegotiations led to the derecognition of the original financial instrument and
subsequent recognition of POCI financial instruments.
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 2023 and 2022 to the closing carrying/nominal amounts as at 31 December 2023
and 2022 respectively, together with the associated allowances for ECL.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 109

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 | 760,211 | 53,554 | 41,597 | 855,362 | (6,241) | (5,030) | (8,660) | (19,931)
– agriculture, forestry and fishing | 163 | 9 | 25 | 197 | (2) | — | (25) | (27)
– manufacture | 96,035 | 8,194 | 3,183 | 107,412 | (373) | (880) | (622) | (1,875)
– electricity, gas, steam and air-conditioning supply | 63,757 | 1,881 | — | 65,638 | (264) | (81) | — | (345)
– water supply, sewerage, waste management and remediation | 16,731 | — | — | 16,731 | (6) | — | — | (6)
– construction | 15,894 | 428 | 5,680 | 22,002 | (197) | (27) | (1,513) | (1,737)
– wholesale and retail trade, repair of motor vehicles and motorcycles | 115,984 | 20,714 | 4,473 | 141,171 | (885) | (1,084) | (1,632) | (3,601)
– transportation and storage | 5,505 | 76 | 2 | 5,583 | (251) | (2) | (1) | (254)
– accommodation and food | 23,856 | 9,896 | 17,238 | 50,990 | (652) | (406) | (2,772) | (3,830)
– information and communication | 20,766 | 2,794 | 46 | 23,606 | (346) | (981) | — | (1,327)
– real estate | 68,981 | 3,929 | 6,558 | 79,468 | (1,273) | (1,070) | (60) | (2,403)
– professional, scientific and technical activities | 129,631 | 5,366 | 157 | 135,154 | (1,034) | (436) | (7) | (1,477)
– administrative and support services | 20,033 | 183 | 411 | 20,627 | (587) | (62) | — | (649)
– education | 192 | — | 1,151 | 1,343 | (4) | — | (168) | (172)
– health and care | 15,816 | 13 | 2,448 | 18,277 | (321) | — | (1,784) | (2,105)
– arts, entertainment and recreation | 192 | 5 | 83 | 280 | (1) | — | (17) | (18)
– other services | 1,767 | 66 | 142 | 1,975 | (29) | (1) | (59) | (89)
– public administration and defence, compulsory social security | 164,908 | — | — | 164,908 | (16) | — | — | (16)
Non-bank financial institutions | 51,690 | — | 8,049 | 59,739 | (702) | — | (1,091) | (1,793)
At 31 Dec 2023 | 811,901 | 53,554 | 49,646 | 915,101 | (6,943) | (5,030) | (9,751) | (21,724)
Other financial assets measured at amortised cost |  |  |  |  |  |  |  |
– endorsements and acceptances | — | 240 | — | 240 | — | (1) | — | (1)
– accrued income | 5,448 | 274 | 4,574 | 10,296 | — | — | (1,825) | (1,825)
At 31 Dec 2023 | 5,448 | 514 | 4,574 | 10,536 | — | (1) | (1,825) | (1,826)

Corporate and commercial | 682,367 | 139,420 | 50,886 | 872,673 | (3,272) | (8,168) | (9,229) | (20,669)
– agriculture, forestry and fishing | 51 | 128 | 97 | 276 | (1) | (2) | (6) | (9)
– manufacture | 50,050 | 8,182 | 3,541 | 61,773 | (362) | (309) | (496) | (1,167)
– electricity, gas, steam and air-conditioning supply | 85,018 | 2,056 | — | 87,074 | (204) | (132) | — | (336)
– water supply, sewerage, waste management and remediation | 23,746 | 217 | — | 23,963 | (5) | (1) | — | (6)
– construction | 18,311 | 1,686 | 2,102 | 22,099 | (177) | (60) | (1,521) | (1,758)
– wholesale and retail trade, repair of motor vehicles and motorcycles | 135,304 | 36,384 | 7,948 | 179,636 | (611) | (806) | (2,944) | (4,361)
– transportation and storage | 5,170 | 547 | 8 | 5,725 | (21) | (22) | (8) | (51)
– accommodation and food | 17,494 | 40,648 | 20,984 | 79,126 | (347) | (3,207) | (2,353) | (5,907)
– information and communication | 23,522 | 4,122 | 1 | 27,645 | (268) | (970) | (1) | (1,239)
– real estate | 71,443 | 5,041 | 9,765 | 86,249 | (745) | (355) | (299) | (1,399)
– professional, scientific and technical activities | 90,225 | 17,927 | 13 | 108,165 | (373) | (1,110) | (12) | (1,495)
– administrative and support services | 5,875 | 7,338 | 413 | 13,626 | (93) | (463) | (2) | (558)
– education | 530 | 18 | 3,188 | 3,736 | (8) | — | (726) | (734)
– health and care | 1,666 | 14,748 | 2,435 | 18,849 | (20) | (724) | (787) | (1,531)
– arts, entertainment and recreation | 197 | 23 | 68 | 288 | — | (1) | — | (1)
– other services | 1,263 | 355 | 323 | 1,941 | (18) | (6) | (74) | (98)
– public administration and defence, compulsory social security | 152,502 | — | — | 152,502 | (19) | — | — | (19)
Non-bank financial institutions | 17,066 | 41,956 | 4,972 | 63,994 | (234) | (1,860) | (261) | (2,355)
At 31 Dec 2022 | 699,433 | 181,376 | 55,858 | 936,667 | (3,506) | (10,028) | (9,490) | (23,024)
Other financial assets measured at amortised cost |  |  |  |  |  |  |  |
– endorsements and acceptances | 1,500 | — | — | 1,500 | (5) | — | — | (5)
– accrued income | 3,055 | 1,084 | 4,754 | 8,893 | — | — | (2,424) | (2,424)
At 31 Dec 2022 | 4,555 | 1,084 | 4,754 | 10,393 | (5) | — | (2,424) | (2,429)

Total wholesale lending for loan and other credit-related commitments and financial guarantees 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 | 497,588 | 32,739 | 3,886 | 534,213 | (781) | (77) | (421) | (1,279)
Non-bank financial institutions | 9,422 | 38 | — | 9,460 | (8) | (3) | — | (11)
At 31 Dec 2023 | 507,010 | 32,777 | 3,886 | 543,673 | (789) | (80) | (421) | (1,290)

Corporate and commercial | 402,793 | 59,656 | 6,841 | 469,290 | (444) | (178) | (652) | (1,274)
Non-bank financial institutions | 16,614 | 4,997 | 1,397 | 23,008 | (19) | (2) | (1) | (22)
At 31 Dec 2022 | 419,407 | 64,653 | 8,238 | 492,298 | (463) | (180) | (653) | (1,296)

Notes on the financial statements

110 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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
| 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
At 1 Jan 2023 | 1,123,395 | (3,974) | 247,113 | (10,208) | 68,850 | (12,567) | 1,439,358 | (26,749)
Transfers of financial instruments | 129,885 | (4,392) | (131,237) | 4,446 | 1,352 | (54) | — | —
– transfers from stage 1 to stage 2 | (27,648) | 199 | 27,648 | (199) | — | — | — | —
– transfers from stage 2 to stage 1 | 158,355 | (4,605) | (158,355) | 4,605 | — | — | — | —
– transfers from stage 3 | 172 | — | 75 | — | (247) | — | — | —
– transfers to stage 3 | (994) | 14 | (605) | 40 | 1,599 | (54) | — | —
Net remeasurement of ECL arising from stage transfers | — | 2,346 | — | (732) | — | 32 | — | 1,646
Changes in risk parameters | — | (833) | — | (929) | — | — | — | (1,762)
Net new and further lending/ repayments | 71,079 | (879) | (29,031) | 2,312 | (12,033) | 529 | 30,015 | 1,962
Assets written off | — | — | — | — | (63) | 63 | (63) | 63
At 31 Dec 2023 | 1,324,359 | (7,732) | 86,845 | (5,111) | 58,106 | (11,997) | 1,469,310 | (24,840)
ECL change for the year |  |  |  |  |  |  |  | 1,909
Assets written off |  |  |  |  |  |  |  | (63)
Change in expected credit losses excluding effect of write-offs |  |  |  |  |  |  |  | 1,846
Recoveries |  |  |  |  |  |  |  | 893
Other |  |  |  |  |  |  |  | 534
Change in expected credit losses and other credit impairment charges |  |  |  |  |  |  |  | 3,273

Changes in expected credit losses for the period comprise the reclassification of the discount unwind element to interest income, amounting to €0.5m for
the year ended 31 December 2023 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
At 1 Jan 2022 | 1,142,186 | (3,305) | 279,429 | (11,656) | 98,496 | (27,533) | 1,520,111 | (42,494)
Transfers of financial instruments : | (15,216) | (61) | 14,100 | 94 | 1,116 | (33) | — | —
– transfers from stage 1 to stage 2 | (40,221) | 220 | 40,221 | (220) | — | — | — | —
– transfers from stage 2 to stage 1 | 25,700 | (285) | (25,700) | 285 | — | — | — | —
– transfers from stage 3 | — | — | — | — | — | — | — | —
– transfers to stage 3 | (695) | 4 | (421) | 29 | 1,116 | (33) | — | —
Net remeasurement of ECL arising from stage transfers | — | 216 | — | (1,331) | — | (28) | — | (1,143)
Changes in risk parameters | — | (751) | — | 902 | — | (595) | — | (444)
Net new and further lending/ repayments | (3,575) | (73) | (46,416) | 1,783 | (17,320) | 2,180 | (67,311) | 3,890
Assets written off | — | — | — | — | (13,442) | 13,442 | (13,442) | 13,442
At 31 Dec 2022 | 1,123,395 | (3,974) | 247,113 | (10,208) | 68,850 | (12,567) | 1,439,358 | (26,749)
ECL change for the year |  |  |  |  |  |  |  | 15,745
Assets written off |  |  |  |  |  |  |  | (13,442)
Change in expected credit losses excluding effect of write-offs |  |  |  |  |  |  |  | 2,303
Recoveries |  |  |  |  |  |  |  | 8,880
Other |  |  |  |  |  |  |  | 1,072
Change in expected credit losses and other credit impairment charges |  |  |  |  |  |  |  | 12,255

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 2022 and included in ‘Other’ in the above reconciliation.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 111

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 | 162,195 | 18,280 | 328,283 | 21,569 | 3,886 | 534,213 | (1,279) | 532,934
Non-bank financial institutions | — | 10 | 9,435 | 15 | — | 9,460 | (11) | 9,449
At 31 Dec 2023 | 162,195 | 18,290 | 337,718 | 21,584 | 3,886 | 543,673 | (1,290) | 542,383

Corporate and commercial | 143,290 | 8,249 | 268,788 | 42,122 | 6,841 | 469,290 | (1,274) | 468,016
Non-bank financial institutions | 2,000 | — | 14,337 | 5,274 | 1,397 | 23,008 | (22) | 22,986
At 31 Dec 2022 | 145,290 | 8,249 | 283,125 | 47,396 | 8,238 | 492,298 | (1,296) | 491,002

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 2023 and 31 December 2022, 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 | 760,211 | 53,554 | 41,597 | 855,362 | (6,241) | (5,030) | (8,660) | (19,931) | 2.3
CRR1 | 160,006 | 1 | — | 160,007 | (16) | — | — | (16) | —
CRR2 | 158,749 | — | — | 158,749 | (36) | — | — | (36) | —
CRR3 | 5,625 | — | — | 5,625 | (29) | — | — | (29) | 0.5
CRR4 | 271,849 | 1,300 | — | 273,149 | (2,947) | (20) | — | (2,967) | 1.1
CRR5 | 150,828 | 14,372 | — | 165,200 | (2,851) | (569) | — | (3,420) | 2.1
CRR6 | 10,959 | 9,757 | — | 20,716 | (150) | (1,068) | — | (1,218) | 5.9
CRR7 | 2,177 | 21,170 | — | 23,347 | (212) | (1,128) | — | (1,340) | 5.7
CRR8 | 18 | 6,954 | — | 6,972 | — | (2,245) | — | (2,245) | 32.2
CRR9/10 | — | — | 41,597 | 41,597 | — | — | (8,660) | (8,660) | 20.8
Non-bank financial institutions | 51,690 | — | 8,049 | 59,739 | (702) | — | (1,091) | (1,793) | 3.0
CRR1 | — | — | — | — | — | — | — | — | —
CRR2 | — | — | — | — | — | — | — | — | —
CRR3 | 7,555 | — | — | 7,555 | — | — | — | — | —
CRR4 | 40,982 | — | — | 40,982 | (647) | — | — | (647) | 1.6
CRR5 | 3,153 | — | — | 3,153 | (55) | — | — | (55) | 1.7
CRR6 | — | — | — | — | — | — | — | — | —
CRR7 | — | — | — | — | — | — | — | — | —
CRR8 | — | — | — | — | — | — | — | — | —
CRR9/10 | — | — | 8,049 | 8,049 | — | — | (1,091) | (1,091) | 13.6
At 31 Dec 2023 | 811,901 | 53,554 | 49,646 | 915,101 | (6,943) | (5,030) | (9,751) | (21,724) | 2.4

Corporate and Commercial | 682,367 | 139,420 | 50,886 | 872,673 | (3,272) | (8,168) | (9,229) | (20,669) | 2.4
CRR1 | 145,974 | — | — | 145,974 | (16) | — | — | (16) | —
CRR2 | 155,352 | — | — | 155,352 | (32) | — | — | (32) | —
CRR3 | 1,576 | 48 | — | 1,624 | (3) | — | — | (3) | 0.2
CRR4 | 194,632 | 2,167 | — | 196,799 | (875) | (10) | — | (885) | 0.4
CRR5 | 170,003 | 30,039 | — | 200,042 | (1,978) | (1,081) | — | (3,059) | 1.5
CRR6 | 14,773 | 66,079 | — | 80,852 | (367) | (3,156) | — | (3,523) | 4.4
CRR7 | 57 | 36,070 | — | 36,127 | (1) | (2,719) | — | (2,720) | 7.5
CRR8 | — | 5,017 | — | 5,017 | — | (1,202) | — | (1,202) | 24.0
CRR9/10 | — | — | 50,886 | 50,886 | — | — | (9,229) | (9,229) | 18.1
Non-bank financial institutions | 17,066 | 41,956 | 4,972 | 63,994 | (234) | (1,860) | (261) | (2,355) | 3.7
CRR1 | 13 | — | — | 13 | — | — | — | — | —
CRR2 | — | — | — | — | — | — | — | — | —
CRR3 | — | — | — | — | — | — | — | — | —
CRR4 | 2,919 | — | — | 2,919 | (20) | — | — | (20) | 0.7
CRR5 | 14,128 | 35,157 | — | 49,285 | (214) | (1,347) | — | (1,561) | 3.2
CRR6 | 6 | 1,638 | — | 1,644 | — | (338) | — | (338) | 20.6
CRR7 | — | 5,161 | — | 5,161 | — | (175) | — | (175) | 3.4
CRR8 | — | — | — | — | — | — | — | — | —
CRR9/10 | — | — | 4,972 | 4,972 | — | — | (261) | (261) | 5.2
At 31 Dec 2022 | 699,433 | 181,376 | 55,858 | 936,667 | (3,506) | (10,028) | (9,490) | (23,024) | 2.5

Notes on the financial statements

112 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 2023 and 2022 to the closing carrying/nominal amounts as at 31 December 2023 and 2022 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 | 1,906,051 | 91,611 | 42,833 | 2,040,495 | (7,044) | (7,218) | (6,240) | (20,502)
Other personal lending | 156,365 | 9,477 | 7,883 | 173,725 | (675) | (1,215) | (1,362) | (3,252)
– second lien residential mortgages | 77,123 | 6,926 | 7,029 | 91,078 | (260) | (322) | (895) | (1,477)
– credit cards | 25,912 | 1,455 | 59 | 27,426 | (304) | (631) | (42) | (977)
– other | 53,330 | 1,096 | 795 | 55,221 | (111) | (262) | (425) | (798)
At 31 Dec 2023 | 2,062,416 | 101,088 | 50,716 | 2,214,220 | (7,719) | (8,433) | (7,602) | (23,754)
Other financial assets measured at amortised cost |  |  |  |  |  |  |  |
– accrued income | 3,769 | 445 | 3,424 | 7,638 | — | — | (2,847) | (2,847)
At 31 Dec 2023 | 3,769 | 445 | 3,424 | 7,638 | — | — | (2,847) | (2,847)

By portfolio |  |  |  |  |  |  |  |
First lien residential mortgages | 1,954,743 | 92,233 | 53,033 | 2,100,009 | (6,161) | (6,566) | (7,698) | (20,425)
Other personal lending | 158,198 | 17,908 | 10,119 | 186,225 | (510) | (2,150) | (1,625) | (4,285)
– second lien residential mortgages | 79,905 | 8,271 | 9,029 | 97,205 | (208) | (326) | (927) | (1,461)
– credit cards | 24,792 | 3,143 | 88 | 28,023 | (227) | (1,260) | (56) | (1,543)
– other | 53,501 | 6,494 | 1,002 | 60,997 | (75) | (564) | (642) | (1,281)
At 31 Dec 2022 | 2,112,941 | 110,141 | 63,152 | 2,286,234 | (6,671) | (8,716) | (9,323) | (24,710)
Other financial assets measured at amortised cost |  |  |  |  |  |  |  |
– accrued income | 4,032 | 501 | 4,002 | 8,535 | — | — | (3,135) | (3,135)
At 31 Dec 2022 | 4,032 | 501 | 4,002 | 8,535 | — | — | (3,135) | (3,135)

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 | 291,201 | 2,276 | 182 | 293,659 | (28) | — | — | (28)
At 31 Dec 2023 | 291,201 | 2,276 | 182 | 293,659 | (28) | — | — | (28)

Personal | 350,404 | 8,648 | 381 | 359,433 | (26) | — | — | (26)
At 31 Dec 2022 | 350,404 | 8,648 | 381 | 359,433 | (26) | — | — | (26)

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 113

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
At 1 Jan 2023 | 2,467,377 | (6,697) | 119,290 | (8,716) | 67,535 | (12,458) | 2,654,202 | (27,871)
Transfers of financial instruments | 4,592 | (3,174) | (3,599) | 2,156 | (993) | 1,018 | — | —
– transfers from stage 1 to stage 2 | (33,867) | 118 | 33,867 | (118) | — | — | — | —
– transfers from stage 2 to stage 1 | 38,988 | (2,962) | (38,988) | 2,962 | — | — | — | —
– transfers from stage 3 | 1,655 | (338) | 5,209 | (1,007) | (6,864) | 1,345 | — | —
– transfers to stage 3 | (2,184) | 8 | (3,687) | 319 | 5,871 | (327) | — | —
Net remeasurement of ECL arising from stage transfers | — | 3,149 | — | (1,595) | — | (751) | — | 803
Changes in risk parameters | — | (1,314) | — | (1,119) | — | (803) | — | (3,236)
Net new and further lending/ repayments | (114,583) | 289 | (11,882) | 841 | (11,716) | 2,041 | (138,181) | 3,171
Assets written off | — | — | — | — | (504) | 504 | (504) | 504
At 31 Dec 2023 | 2,357,386 | (7,747) | 103,809 | (8,433) | 54,322 | (10,449) | 2,515,517 | (26,629)
ECL change for the year |  |  |  |  |  |  |  | 1,242
Assets written off |  |  |  |  |  |  |  | (504)
Change in expected credit losses excluding effect of write-offs |  |  |  |  |  |  |  | 738
Recoveries |  |  |  |  |  |  |  | 573
Other |  |  |  |  |  |  |  | (2)
Change in expected credit losses and other credit impairment charges |  |  |  |  |  |  |  | 1,309

At 1 Jan 2022 | 2,552,074 | (11,947) | 58,355 | (4,386) | 93,963 | (10,157) | 2,704,392 | (26,490)
Transfers of financial instruments : | (58,933) | (367) | 72,084 | (1,846) | (13,151) | 2,213 | — | —
– transfers from stage 1 to stage 2 | (65,405) | 343 | 65,405 | (343) | — | — | — | —
– transfers from stage 2 to stage 1 | 7,871 | (449) | (7,871) | 449 | — | — | — | —
– transfers from stage 3 | 3,168 | (284) | 20,652 | (2,359) | (23,820) | 2,643 | — | —
– transfers to stage 3 | (4,567) | 23 | (6,102) | 407 | 10,669 | (430) | — | —
Net remeasurement of ECL arising from stage transfers | — | 683 | — | (3,951) | — | (656) | — | (3,924)
Changes in risk parameters | — | 4,894 | — | 924 | — | (6,004) | — | (186)
Net new and further lending/ repayments | (25,764) | 40 | (11,149) | 543 | (11,515) | 384 | (48,428) | 967
Assets written off | — | — | — | — | (1,762) | 1,762 | (1,762) | 1,762
At 31 Dec 2022 | 2,467,377 | (6,697) | 119,290 | (8,716) | 67,535 | (12,458) | 2,654,202 | (27,871)
ECL change for the year |  |  |  |  |  |  |  | (1,381)
Assets written off |  |  |  |  |  |  |  | (1,762)
Change in expected credit losses for the year |  |  |  |  |  |  |  | (3,143)
Recoveries |  |  |  |  |  |  |  | 479
Other |  |  |  |  |  |  |  | (19)
Change in expected credit losses and other credit impairment charges |  |  |  |  |  |  |  | (2,683)

Notes on the financial statements

114 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 | 1,906,051 | 91,611 | 42,833 | 2,040,495 | (7,044) | (7,218) | (6,240) | (20,502) | 1.0
Not past due | 1,902,457 | 75,594 | 14,412 | 1,992,463 | (7,030) | (5,757) | (1,371) | (14,158) | 0.7
Past due by: |  |  |  |  |  |  |  |  |
less than 30 days | 3,594 | 12,888 | 8,887 | 25,369 | (14) | (1,110) | (754) | (1,878) | 7.4
30 to 59 days | — | 2,038 | 3,073 | 5,111 | — | (188) | (370) | (558) | 10.9
60 to 89 days | — | 1,091 | 2,295 | 3,386 | — | (163) | (276) | (439) | 13.0
90 days and more | — | — | 14,166 | 14,166 | — | — | (3,469) | (3,469) | 24.5
Other personal lending | 156,365 | 9,477 | 7,883 | 173,725 | (675) | (1,215) | (1,362) | (3,252) | 1.9
Not past due | 154,384 | 7,124 | 2,100 | 163,608 | (655) | (873) | (157) | (1,685) | 1.0
Past due by: |  |  |  |  |  |  |  |  |
less than 30 days | 1,981 | 1,552 | 876 | 4,409 | (20) | (149) | (55) | (224) | 5.1
30 to 59 days | — | 643 | 557 | 1,200 | — | (125) | (121) | (246) | 20.5
60 to 89 days | — | 158 | 113 | 271 | — | (68) | (9) | (77) | 28.4
90 days and more | — | — | 4,237 | 4,237 | — | — | (1,020) | (1,020) | 24.1
At 31 Dec 2023 | 2,062,416 | 101,088 | 50,716 | 2,214,220 | (7,719) | (8,433) | (7,602) | (23,754) | 1.1

First lien residential mortgages | 1,954,743 | 92,233 | 53,033 | 2,100,009 | (6,161) | (6,566) | (7,698) | (20,425) | 1.0
Not past due | 1,954,653 | 73,316 | 16,316 | 2,044,285 | (6,161) | (5,366) | (2,400) | (13,927) | 0.7
Past due by: |  |  |  |  |  |  |  |  |
less than 30 days | 90 | 16,569 | 11,113 | 27,772 | — | (918) | (1,258) | (2,176) | 7.8
30 to 59 days | — | 1,819 | 4,439 | 6,258 | — | (137) | (480) | (617) | 9.9
60 to 89 days | — | 529 | 2,187 | 2,716 | — | (145) | (243) | (388) | 14.3
90 days and more | — | — | 18,978 | 18,978 | — | — | (3,317) | (3,317) | 17.5
Other personal lending | 158,198 | 17,908 | 10,119 | 186,225 | (510) | (2,150) | (1,625) | (4,285) | 2.3
Not past due | 156,572 | 14,512 | 3,133 | 174,217 | (494) | (1,703) | (307) | (2,504) | 1.4
Past due by: |  |  |  |  |  |  |  |  |
less than 30 days | 1,626 | 2,801 | 1,187 | 5,614 | (16) | (285) | (81) | (382) | 6.8
30 to 59 days | — | 332 | 687 | 1,019 | — | (72) | (135) | (207) | 20.3
60 to 89 days | — | 263 | 246 | 509 | — | (90) | (24) | (114) | 22.4
90 days and more | — | — | 4,866 | 4,866 | — | — | (1,078) | (1,078) | 22.2
At 31 Dec 2022 | 2,112,941 | 110,141 | 63,152 | 2,286,234 | (6,671) | (8,716) | (9,323) | (24,710) | 1.1

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 on the next
page 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.
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 on the next page. 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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 115

Wholesale lending to customers

Wholesale lending: loans and advances to customers by level of collateral by stage distribution
| Gross carrying 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 | % | % | % | %
Not Collateralised | 282,377 | 5,600 | 8,396 | 296,373 | (2,419) | (320) | (2,254) | (4,993) | 0.9 | 5.7 | 26.8 | 1.7
Fully collateralised by LTV ratio | 498,384 | 42,039 | 36,116 | 576,539 | (4,006) | (4,023) | (6,394) | (14,423) | 0.8 | 9.6 | 17.7 | 2.5
– less than 50% | 223,638 | 36,527 | 14,850 | 275,015 | (3,747) | (2,662) | (3,312) | (9,721) | 1.7 | 7.3 | 22.3 | 3.5
– 51% to 75% | 86,648 | 3,719 | 18,417 | 108,784 | (180) | (1,218) | (2,450) | (3,848) | 0.2 | 32.8 | 13.3 | 3.5
– 76% to 90% | 21,840 | 1,670 | 2,800 | 26,310 | (30) | (139) | (632) | (801) | 0.1 | 8.3 | 22.6 | 3.0
– 91% to 100% | 166,258 | 123 | 49 | 166,430 | (49) | (4) | — | (53) | — | 3.3 | — | —
Partially collateralised: LTV > 100% | 31,140 | 5,915 | 5,134 | 42,189 | (518) | (687) | (1,103) | (2,308) | 1.7 | 11.6 | 21.5 | 5.5
– of which: Collateral value | 12,948 | 3,906 | 2,501 | 19,355 |  |  |  |  |  |  |  |
Total at 31 Dec 2023 | 811,901 | 53,554 | 49,646 | 915,101 | (6,943) | (5,030) | (9,751) | (21,724) | 0.9 | 9.4 | 19.6 | 2.4
Not Collateralised | 169,622 | 45,793 | 34,581 | 249,996 | (1,026) | (1,274) | (6,173) | (8,473) | 0.6 | 2.8 | 17.9 | 3.4
Fully collateralised by LTV ratio | 457,924 | 123,503 | 19,299 | 600,726 | (1,992) | (8,180) | (2,243) | (12,415) | 0.4 | 6.6 | 11.6 | 2.1
– less than 50% | 162217 | 115,287 | 18,102 | 295,606 | (1,608) | (7,854) | (2,049) | (11,511) | 1.0 | 6.8 | 11.3 | 3.9
– 51% to 75% | 29,657 | 6,521 | 1,188 | 37,366 | (284) | (308) | (185) | (777) | 1.0 | 4.7 | 15.6 | 2.1
– 76% to 90% | 2,106 | 1,480 | — | 3,586 | (8) | (10) | — | (18) | 0.4 | 0.7 | — | 0.5
– 91% to 100% | 263,944 | 215 | 9 | 264,168 | (92) | (8) | (9) | (109) | — | 3.7 | 100.0 | —
Partially collateralised: LTV > 100% | 71,887 | 12,080 | 1,978 | 85,945 | (488) | (574) | (1,074) | (2,136) | 0.7 | 4.8 | 54.3 | 2.5
– of which: Collateral value | 13,460 | 3,441 | 678 | 17,579 |  |  |  |  |  |  |  |
Total at 31 Dec 2022 | 699,433 | 181,376 | 55,858 | 936,667 | (3,506) | (10,028) | (9,490) | (23,024) | 0.5 | 5.5 | 17.0 | 2.5

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 | 287,977 | (2,739) | 1.0
Fully collateralised | 540,423 | (8,029) | 1.5
– less than or equal to 50% | 260,165 | (6,409) | 2.5
– 51% to 75% | 90,367 | (1,398) | 1.5
– 76% to 90% | 23,510 | (169) | 0.7
– 91% to 100% | 166,381 | (53) | —
Partially collateralised: LTV > 100% | 37,055 | (1,205) | 3.3
– of which: Collateral value | 16,854 |  |
Total | 865,455 | (11,973) | 1.4
CRR 9 to 10 |  |  |
Not collateralised | 8,396 | (2,254) | 26.8
Fully collateralised | 36,116 | (6,394) | 17.7
– less than or equal to 50% | 14,850 | (3,312) | 22.3
– 51% to 75% | 18,417 | (2,450) | 13.3
– 76% to 90% | 2,800 | (632) | 22.6
– 91% to 100% | 49 | — | —
Partially collateralised: LTV > 100% | 5,134 | (1,103) | 21.5
– of which: Collateral value | 2,501 |  |
Total | 49,646 | (9,751) | 19.6
At 31 Dec 2023 | 915,101 | (21,724) | 2.4

Notes on the financial statements

116 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 | 215,415 | (2,300) | 1.1
Fully collateralised | 581,427 | (10,172) | 1.7
– less than or equal to 50% | 277,504 | (9,462) | 3.4
– 51% to 75% | 36,178 | (592) | 1.6
– 76% to 90% | 3,586 | (18) | 0.5
– 91% to 100% | 264,159 | (100) | —
Partially collateralised: LTV > 100% | 83,967 | (1,062) | 1.3
– of which: Collateral value | 16,901 |  |
Total | 880,809 | (13,534) | 1.5
CRR 9 to 10 |  |  |
Not collateralised | 34,581 | (6,173) | 17.9
Fully collateralised | 19,299 | (2,243) | 11.6
– less than or equal to 50% | 18,102 | (2,049) | 11.3
– 51% to 75% | 1,188 | (185) | 15.6
– 76% to 90% | — | — | —
– 91% to 100% | 9 | (9) | 100.0
Partially collateralised: LTV > 100% | 1,978 | (1,074) | 54.3
– of which: Collateral value | 678 |  |
Total | 55,858 | (9,490) | 17.0
At 31 Dec 2022 | 936,667 | (23,024) | 2.5

Personal lending to customers

Personal lending: residential mortgages, loans and advances by level of collateral by stage distribution
| 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 | % | % | % | %
Not Collateralised | 73,880 | 2,486 | 707 | 77,073 | (405) | (875) | (412) | (1,692) | 0.5 | 35.2 | 58.3 | 2.2
Fully collateralised by LTV ratio | 1,984,890 | 98,574 | 49,978 | 2,133,442 | (7,307) | (7,551) | (7,175) | (22,033) | 0.4 | 7.7 | 14.4 | 1.0
– less than 50% | 964,268 | 68,577 | 39,400 | 1,072,245 | (3,261) | (3,666) | (4,526) | (11,453) | 0.3 | 5.3 | 11.5 | 1.1
– 51% to 75% | 828,702 | 27,505 | 8,853 | 865,060 | (3,293) | (3,337) | (2,145) | (8,775) | 0.4 | 12.1 | 24.2 | 1.0
– 76% to 90% | 189,953 | 2,457 | 1,195 | 193,605 | (750) | (536) | (291) | (1,578) | 0.4 | 21.8 | 24.4 | 0.8
– 91% to 100% | 1,967 | 35 | 530 | 2,532 | (3) | (12) | (213) | (227) | 0.2 | 34.3 | 40.2 | 9.0
Partially collateralised: LTV > 100% | 3,646 | 28 | 31 | 3,705 | (7) | (7) | (15) | (29) | 0.2 | 25.0 | 48.4 | 0.8
– of which: Collateral value | 762 | 3 | 11 | 776 |  |  |  |  |  |  |  |
Total at 31 Dec 2023 | 2,062,416 | 101,088 | 50,716 | 2,214,220 | (7,719) | (8,433) | (7,602) | (23,754) | 0.4 | 8.3 | 15.0 | 1.1
Not Collateralised | 72,884 | 8,379 | 1,005 | 82,268 | (296) | (1,762) | (646) | (2,704) | 0.4 | 21.0 | 64.3 | 3.3
Fully collateralised by LTV ratio | 2,036,266 | 101,395 | 62,123 | 2,199,784 | (6,370) | (6,932) | (8,661) | (21,963) | 0.3 | 6.8 | 13.9 | 1.0
– less than 50% | 910,869 | 66,286 | 48,290 | 1,025,445 | (2,674) | (2,937) | (4,795) | (10,406) | 0.3 | 4.4 | 9.9 | 1.0
– 51% to 75% | 852,590 | 30,812 | 11,507 | 894,909 | (2,773) | (3,491) | (3,143) | (9,407) | 0.3 | 11.3 | 27.3 | 1.1
– 76% to 90% | 271,060 | 3,919 | 1,932 | 276,911 | (921) | (480) | (518) | (1,919) | 0.3 | 12.2 | 26.8 | 0.7
– 91% to 100% | 1,747 | 378 | 394 | 2,519 | (2) | (24) | (205) | (231) | 0.1 | 6.3 | 52.0 | 9.2
Partially collateralised: LTV > 100% | 3,791 | 367 | 24 | 4,182 | (5) | (22) | (16) | (43) | 0.1 | 6.0 | 66.7 | 1.0
– of which: Collateral value | 969 | 137 | 4 | 1,110 |  |  |  |  |  |  |  |
Total at 31 Dec 2022 | 2,112,941 | 110,141 | 63,152 | 2,286,234 | (6,671) | (8,716) | (9,323) | (24,710) | 0.3 | 7.9 | 14.8 | 1.1

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 117

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 | 75,976 | (1,175) | 1.5
Fully collateralised | 2,106,171 | (16,743) | 0.8
– less than or equal to 50% | 1,051,384 | (7,950) | 0.8
– 51% to 75% | 860,301 | (7,455) | 0.9
– 76% to 90% | 192,496 | (1,324) | 0.7
– 91% to 100% | 1,990 | (14) | 0.7
Partially collateralised: LTV > 100% | 3,702 | (27) | 0.7
– of which: Collateral value | 773 |  |
Total | 2,185,849 | (17,945) | 0.8
30 days to 89 days past due |  |  |
Not collateralised | 556 | (192) | 34.5
Fully collateralised | 9,412 | (1,128) | 12.0
– less than or equal to 50% | 7,338 | (620) | 8.4
– 51% to 75% | 1,370 | (275) | 20.1
– 76% to 90% | 320 | (64) | 20.0
– 91% to 100% | 384 | (169) | 44.0
Partially collateralised: LTV > 100% | — | — | —
– of which: Collateral value | — |  |
Total | 9,968 | (1,320) | 13.2
90 days past due or more |  |  |
Not collateralised | 541 | (325) | 60.1
Fully collateralised | 17,859 | (4,162) | 23.3
– less than or equal to 50% | 13,524 | (2,883) | 21.3
– 51% to 75% | 3,388 | (1,045) | 30.8
– 76% to 90% | 790 | (189) | 23.9
– 91% to 100% | 157 | (45) | 28.7
Partially collateralised: LTV > 100% | 3 | (2) | 66.7
– of which: Collateral value | 3 |  |
Total | 18,403 | (4,489) | 24.4
At 31 Dec 2023 | 2,214,220 | (23,754) | 1.1

Less than 30 days past due |  |  |
Not collateralised | 81,096 | (2,095) | 2.6
Fully collateralised | 2,166,637 | (16,869) | 0.8
– less than or equal to 50% | 999,672 | (7,418) | 0.7
– 51% to 75% | 888,503 | (7,606) | 0.9
– 76% to 90% | 276,138 | (1,727) | 0.6
– 91% to 100% | 2,324 | (118) | 5.1
Partially collateralised: LTV > 100% | 4,155 | (25) | 0.6
– of which: Collateral value | 1,106 |  |
Total | 2,251,888 | (18,989) | 0.8
30 days to 89 days past due |  |  |
Not collateralised | 506 | (178) | 35.2
Fully collateralised | 9,977 | (1,136) | 11.4
– less than or equal to 50% | 7,739 | (716) | 9.3
– 51% to 75% | 1,902 | (339) | 17.8
– 76% to 90% | 336 | (81) | 24.1
– 91% to 100% | — | — | —
Partially collateralised: LTV > 100% | 19 | (12) | 63.2
– of which: Collateral value | 2 |  |
Total | 10,502 | (1,326) | 12.6
90 days past due or more |  |  |
Not collateralised | 666 | (431) | 64.7
Fully collateralised | 23,170 | (3,958) | 17.1
– less than or equal to 50% | 18,034 | (2,272) | 12.6
– 51% to 75% | 4,504 | (1,462) | 32.5
– 76% to 90% | 437 | (111) | 25.4
– 91% to 100% | 195 | (113) | 57.9
Partially collateralised: LTV > 100% | 8 | (6) | 75.0
– of which: Collateral value | 2 |  |
Total | 23,844 | (4,395) | 18.4
At 31 Dec 2022 | 2,286,234 | (24,710) | 1.1

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 2023 and 2022.
Notes on the financial statements

118 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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 judgemental adjustments.
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’).
Four economic scenarios are used to capture the current economic environment and to articulate management’s view of the range of potential
outcomes. The Central, Upside and Downside scenarios selected with reference to external forecast distributions are termed the ‘consensus
economic scenarios’. The Central scenario is deemed the ‘most likely’ scenario, and usually attracts the largest probability weighting, while the
outer scenarios represent the tails of the distribution, which are less likely to occur.
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.
To generate the consensus 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.
The fourth scenario, the Downside 2 scenario is derived from a scenario developed by an external vendor, which represents a more severe
downside scenario in the short term and is designed to capture tail-end risk. The scenario is constructed by realigning the implied shocks applied
through the construction of the severe downside scenario developed by the external vendor to the consensus Central scenario. Amendments to
the standard rules are applied when the Downside 2 scenario appears to be more optimistic than the consensus Downside scenario to ensure
that the trajectory of the overall set of scenarios is reasonable.
Scenarios are developed and established by the HSBC Group in respect of each country in which it operates. Therefore, specific scenarios are
developed by the HSBC Group for the local group in order to capture the nuances within the local economy and to reflect the impact of possible
macroeconomic scenarios in the local group’s ECL calculation.
Description of economic scenarios
During the financial year ended 31 December 2023, high inflation and rising interest rates have reduced real household incomes and raised
business costs in Europe, dampening consumption and investment and lowering growth expectations.
Economic forecasts remain subject to a high degree of uncertainty. Risks to the economic outlook include the persistence of inflation risks
relating to energy pricing and supply security. Economic forecasts remained broadly stable in the fourth quarter of 2023, with the key exception
being monetary policy, where expectations for interest rate cuts were brought forward. The outlook for 2024 continues to be for a period of
below trend growth, while inflation remains above central bank targets.
At the end of 2023, risks to the economic outlook included a number of significant geopolitical issues. In this respect, geopolitical risks remain
significant and include the possibility of a prolonged and escalating military conflict between Russia and Ukraine, further escalations in the
Middle East as a result of the outbreak of the war between Israel and Hamas, as well as continued differences between the United States of
America (‘USA’) and other countries with China over a range of economic and strategic issues.
The macroeconomic forecasts applied by the local group in the ECL calculation also reflect risks which are specific to Malta, including the impact
of high inflation rates and the elevated interest rate environment, together with the possible effect of further supply chain disruptions caused by
a possible prolonging of the military conflicts between Russia and Ukraine and between Israel and Hamas, on the local economy. In addition,
forecasts used by the local group also capture the impact of government support measures on local investment and private consumption levels.
The scenarios used to calculate ECL are described below.
The consensus Central scenario
The local group’s Central scenario reflects expectations for a low growth and high interest rate environment, where GDP growth is expected to
be weaker in 2024 relative to 2023.
The period of below-trend GDP growth through 2024 is primarily driven by the lagged effects of higher interest rates and inflation in Europe. The
higher financing costs and inflationary pressures are expected to lead to a deterioration in household discretionary income and business
margins. Economic growth is only forecasted to return to its long-term expected trend in later years, once inflation reverts towards central bank
targets and interest rates stabilise.
The five-year average real GDP growth rate for the Maltese economy under the consensus Central scenario is higher than that forecasted as at
31 December 2022. This is attributable to an expected recovery in real GDP growth rates, triggered by expectations that inflation rates continue
to fall, converging towards central banks’ target rates by early 2025 and interest rates stabilise albeit at a higher level compared to the post-
global financial crisis period.
The Central scenario assumes that inflation continues to fall as commodity prices decline, supply disruptions abate, and wage growth
moderates, converging towards central banks’ target rates by early 2025. Policy interest rates are forecast to have peaked and are projected to
decline in 2024. In the longer term, they are expected to remain at a higher level compared to the post-global financial crisis period.
The probability weight assigned to the Central scenario is 75% (2022: 60%).
The consensus Upside scenario
Compared with the Central scenario, the consensus Upside scenario features stronger economic activity in the near term, before converging to
long-run trend expectations. It also incorporates a faster fall in the rate of inflation than incorporated in the Central scenario.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 119

The scenario is consistent with a number of key upside risk themes. These include a faster fall in the rate of inflation that allows central banks to
reduce interest rates more quickly, an easing in financial conditions, and de-escalation in geopolitical tensions, as the military conflicts between
Russia and Ukraine and between Israel and Hamas move towards conclusions, and the relationship between the US and China improves.
The probability weight assigned to the consensus Upside scenario is 10% (2022: 5%).
Downside scenarios
Downside scenarios explore the intensification and crystallisation of a number of key economic and financial risks, in which geopolitical tensions
escalate and disrupt key commodity and goods markets. As the geopolitical environment remains volatile and complex, risks include a broader
and more prolonged conflict in the Middle East that undermines confidence, drives an increase in global energy costs and reduces trade and
investment; a potential escalation in the conflict between Russia and Ukraine, which expands beyond Ukraine’s borders, and further disrupts
energy, fertiliser and food supplies; and continued differences between the US and China, which could affect confidence, the global goods trade
and supply chains for critical technologies.
As can be observed in the economic paths presented below, the average unemployment rates forecasted as at 31 December 2023 under the
consensus Downside and Downside 2 scenarios, to which a combined probability weight of 15% is assigned, reflect a significant increase in the
national unemployment rate during the first three years to capture different assumptions in respect of the possible economic shocks triggered
by an economic recession on the labour market.
The consensus Downside scenario
In the consensus Downside scenario, economic activity is weaker compared with the Central scenario. In this scenario, GDP declines,
unemployment rates rise, and asset prices increase at a slower rate. The scenario features an escalation of geopolitical tensions, resulting in a
higher inflation rate compared to the Central scenario, as supply chain constraints intensify and energy prices rise. The scenario also features a
temporary increase in interest rates, before the effects of weaker consumption demand begin to dominate and commodity prices and inflation
rates fall below the levels forecasted under the consensus Central scenario.
The probability weight assigned to the consensus Downside scenario is 10% (2022: 25%).
Downside 2 scenario
The Downside 2 scenario features a deep global recession and reflects the local group’s view of the tail of the economic distribution. It
incorporates the crystallisation of a number of risks simultaneously, including a further escalation of geopolitical crises globally, which creates
severe supply disruptions to goods and energy markets.
The Downside 2 scenario is designed to capture a more severe economic scenario, with elevated interest rates and inflation rates resulting in a
contraction in the local economy, as evidenced by the negative real GDP growth rates and elevated unemployment rates in 2024 and 2025. As
inflation surges and central banks tighten monetary policy further, confidence evaporates. However, this impulse is expected to prove short-
lived, as recession takes hold, causing commodity prices to correct sharply and global price inflation to fall. This scenario also captures the
potential impact of a significant drop in property prices.
The probability weight assigned to the Downside 2 scenario is 5% (2022: 10%).
Macroeconomic scenario trajectories
The projected economic paths in respect of each of the key macroeconomic variables specific to the Maltese economy across the four
macroeconomic scenarios described above are presented in the tables below:

Malta: Real GDP growth rates - 2023 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2023: Annual average growth rate (%) | 4.3 | 4.3 | 4.3 | 4.3
2024: Annual average growth rate (%) | 3.6 | 4.5 | 2.6 | (2.1)
2025: Annual average growth rate (%) | 3.8 | 5.0 | 2.5 | (0.6)
2026: Annual average growth rate (%) | 3.6 | 4.3 | 2.9 | 5.6
2027: Annual average growth rate (%) | 3.7 | 3.6 | 3.6 | 5.5
Five year average growth rate (%) | 3.7 | 4.2 | 3.1 | 2.6

Malta: Real GDP growth rates - 2022 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2022: Annual average growth rate (%) | 5.0 | 5.0 | 5.0 | 5.0
2023: Annual average growth rate (%) | 3.2 | 4.5 | 1.7 | (2.2)
2024: Annual average growth rate (%) | 3.1 | 4.7 | 1.5 | (1.7)
2025: Annual average growth rate (%) | 2.8 | 3.7 | 2.1 | 4.6
2026: Annual average growth rate (%) | 2.8 | 2.8 | 2.8 | 4.8
Five year average growth rate (%) | 2.9 | 3.7 | 2.2 | 1.7

Malta: Unemployment rate - 2023 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2023: Annual average rate (%) | 2.6 | 2.6 | 2.6 | 2.6
2024: Annual average rate (%) | 2.9 | 2.6 | 3.3 | 3.4
2025: Annual average rate (%) | 3.0 | 2.7 | 3.4 | 3.9
2026: Annual average rate (%) | 3.0 | 2.9 | 3.1 | 3.7
2027: Annual average rate (%) | 2.9 | 2.9 | 2.9 | 3.3
Five year average rate (%) | 2.9 | 2.8 | 3.2 | 3.5

Notes on the financial statements

120 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Malta: Unemployment rate - 2022 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2022: Annual average rate (%) | 3.3 | 3.3 | 3.3 | 3.3
2023: Annual average rate (%) | 3.5 | 2.2 | 4.7 | 4.7
2024: Annual average rate (%) | 3.5 | 2.2 | 4.9 | 5.1
2025: Annual average rate (%) | 3.6 | 3.0 | 4.1 | 4.8
2026: Annual average rate (%) | 3.5 | 3.5 | 3.5 | 4.2
Five year average rate (%) | 3.5 | 2.9 | 4.2 | 4.6

Malta: Consumer price index - 2023 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2023: Annual average growth rate (%) | 5.6 | 5.6 | 5.6 | 5.6
2024: Annual average growth rate (%) | 2.9 | 2.7 | 3.1 | 5.1
2025: Annual average growth rate (%) | 1.8 | 1.4 | 2.0 | (0.3)
2026: Annual average growth rate (%) | 1.9 | 2.2 | 1.5 | 0.3
2027: Annual average growth rate (%) | 2.1 | 2.4 | 1.8 | 1.2
Five year average growth rate (%) | 2.2 | 2.2 | 2.1 | 1.6

Malta: Consumer price index - 2022 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2022: Annual average % change | 5.9 | 5.9 | 5.9 | 5.9
2023: Annual average % change | 3.2 | 2.5 | 4.6 | 7.2
2024: Annual average % change | 1.9 | 1.4 | 1.9 | (1.4)
2025: Annual average % change | 1.9 | 2.1 | 0.8 | 0.3
2026: Annual average % change | 2.0 | 2.0 | 2.0 | 1.3
Five year average % change | 2.2 | 2.0 | 2.2 | 1.8

Malta: House price index - 2023 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2023: Annual average growth rate (%) | 6.2 | 6.2 | 6.2 | 6.2
2024: Annual average growth rate (%) | 5.6 | 6.8 | 3.9 | 0.2
2025: Annual average growth rate (%) | 9.4 | 10.6 | 8.0 | (4.1)
2026: Annual average growth rate (%) | 4.2 | 4.6 | 3.8 | (10.2)
2027: Annual average growth rate (%) | 5.1 | 5.1 | 5.1 | (0.8)
Five year average growth rate (%) | 5.8 | 6.4 | 5.1 | (2.5)

Malta: House price index - 2022 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2022: Annual average % change | 5.9 | 5.9 | 5.9 | 5.9
2023: Annual average % change | 7.0 | 8.3 | 5.4 | 3.5
2024: Annual average % change | 6.7 | 8.3 | 5.0 | (10.7)
2025: Annual average % change | 3.9 | 4.7 | 3.1 | (13.0)
2026: Annual average % change | 3.9 | 3.9 | 3.9 | (3.1)
Five year average % change | 5.2 | 6.0 | 4.4 | (3.8)

Malta: Short-term interest rates - 2023 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2023: Annual average rate (%) | 3.5 | 3.5 | 3.5 | 3.5
2024: Annual average rate (%) | 3.7 | 3.1 | 3.6 | 4.5
2025: Annual average rate (%) | 2.8 | 2.8 | 1.5 | 1.9
2026: Annual average rate (%) | 2.7 | 2.7 | 1.5 | 1.6
2027: Annual average rate (%) | 2.7 | 2.7 | 2.5 | 1.8
Five year average rate (%) | 3.0 | 2.8 | 2.4 | 2.3

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 121

Malta: Short-term interest rates - 2022 projections
| Consensus scenarios | Downside 2 scenario
| Central | Upside | Downside
2022: Annual average rate (%) | 0.4 | 0.4 | 0.4 | 0.4
2023: Annual average rate (%) | 2.8 | 2.5 | 3.0 | 4.8
2024: Annual average rate (%) | 2.7 | 2.4 | 1.5 | 2.1
2025: Annual average rate (%) | 2.3 | 2.3 | 0.6 | 0.7
2026: Annual average rate (%) | 2.3 | 2.3 | 0.9 | 0.6
Five year average rate (%) | 2.5 | 2.4 | 1.5 | 1.8

Scenario weighting
In reviewing the economic conjuncture, the level of uncertainty and risk, management has considered both global and country-specific factors.
Standard probabilistic assessments based on historical and observed macroeconomic experience are of limited value when extreme economic
events occur, given that such events are poorly represented in historical macroeconomic data. As such, the historical distributions are only used
as a guidance and less relied upon when determining the appropriate weights.
However, despite developments in the Middle East, measures of risk and uncertainty that are used to inform judgements around the Central
scenario and the dispersion of forecasts around the consensus have remained stable.
This has led management to assign scenario probabilities that are aligned to the standard scenario framework as at 31 December 2023. In this
respect, the consensus Upside and Central scenarios were assigned a combined weighting of 85%, consistent with the approved framework.
The Downside 1 scenario is then assigned 10% probability and the Downside 2 is assigned 5%.
As a result, the combined probability assigned to the Downside scenarios as at 31 December 2023 is lower when compared to 31 December
2022, with more weight being assigned to the consensus Upside and Central scenarios based on expert judgement applied in response to
changes in the severity of modelled scenarios since the prior year.
The probability weights assigned to the respective scenarios across all wholesale and retail portfolios as at 31 December 2023 and
31 December 2022 are presented in the table below:

| Consensus Scenarios | Downside 2 scenario
| Central | Upside | Downside
Probability (%) – 31 Dec 2023 | 75 | 10 | 10 | 5
Probability (%) – 31 Dec 2022 | 60 | 5 | 25 | 10

How economic scenarios are reflected in the retail calculation of ECL
With respect to the retail portfolio, 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. In contrast, no FEG impact on LGD is modelled in respect of exposures classified within any of the
retail portfolios. The key macroeconomic variables used for the retail portfolio are specific to Malta and have been calibrated in line with the
methodology explained on previous pages.
Based on an assessment performed by the local group in respect of the correlation between historical observed default rates and various
macroeconomic variables, it was determined that the most relevant macroeconomic variables to use within the ECL calculation in respect of
mortgages were unemployment and real GDP growth rates. A relative 80:20 weighting was assigned to unemployment and real GDP growth
rates respectively. Expert judgement was applied in the selection of the macroeconomic variables as well as the assignment of the relative
weightings. In view of the fact that the Loan to Value (‘LTV’) ratio represents one of the criteria used for segmentation purposes in respect of
exposures classified within the mortgage portfolio, the House Price Index (‘HPI’) is also considered in the estimation of forward-looking PIT PDs,
with exposures migrating between segments on the basis of forecasted shocks to the HPI, which in turn impact the LTV segmentation.
In contrast, the modelling of forward-looking macroeconomic scenarios in respect of exposures classified within unsecured retail portfolios is
linked to a singular macroeconomic variable. In this respect, the key macroeconomic variable used in the estimation of ECLs in respect of retail
overdrafts and personal loans is the unemployment rate, whereas the real GDP growth rate is used as the key macroeconomic variable for
credit cards.
How economic scenarios are reflected in the wholesale calculation of ECL
For the wholesale portfolio, FEG is incorporated into the calculation of ECL through the estimation of the term structure of PD and LGD.
For the PD calculation, 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 non-credit impaired loans, the local group uses the proxy country’s real GDP growth rate, unemployment rate, consumer price index, short-
term interest rate, and the house price index as the relevant macroeconomic variables to determine the term structure of PD and LGD. The
macroeconomic paths modelled in respect of the macroeconomic variables used by the proxy country are assessed by management to be
similar to those modelled in respect of the retail portfolios, with similar shocks and trajectories being applied for the proxy country’s and Malta’s
economies.
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 consensus Central scenario outcome for individually significant stage 3 loans.
Notes on the financial statements

122 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Management judgemental adjustments
In the context of ECL measurement, management judgemental adjustments are short-term increases or decreases to the ECL at a customer,
segment or portfolio level to account for late-breaking events, model and data limitations and deficiencies, and expert credit judgement applied
following management review and challenge. This includes refining model inputs and outputs and using adjustments to ECL based on
management judgement and higher-level quantitative analysis for impacts that are difficult to model.
The effects of management judgemental adjustments are considered for balances and ECL when determining whether or not a significant
increase in credit risk has occurred and are attributed or allocated to a stage as appropriate.
Management judgemental adjustments are reviewed under the governance process for IFRS 9. Review and challenge focuses on the rationale
and quantum of the adjustments with a further review carried out by the second line of defence where significant. For some management
judgemental adjustments, internal frameworks establish the conditions under which these adjustments should no longer be required and as
such are considered as part of the governance process. This internal governance process allows management judgemental adjustments to be
reviewed regularly and, where possible, to reduce the reliance on these through model recalibration or redevelopment, as appropriate.
The drivers of management judgemental adjustments continue to evolve with the economic environment, and as new risks emerge.
During the financial year ended 31 December 2022, the significance of the above risks subsided as the world returned to relative normality with
economic activity returning to pre-Covid levels, with the removal of Malta from the FATF grey list further reducing the level of uncertainty. In this
respect, the management judgemental adjustments reflected in the ECL calculation as at 31 December 2021 were released during the financial
year ended 31 December 2022.
As explained previously, due to the new risks emerged during the financial year ended 31 December 2022, particularly the inflationary pressures
and the elevated interest rate environment, the level of economic uncertainty remains elevated, with a potential impact on the bank’s ECL
calculations. In this respect, a management judgemental adjustment amounting to €5.0 million (2022: €5.1 million) was estimated to capture the
risk of increases in inflation and interest rates impacting the affordability of borrowers within the retail mortgage portfolio, which risks are not
deemed to be captured by the FEG modelling. This is especially relevant since the ECL calculation in respect of retail portfolios only takes into
consideration unemployment rates and real GDP growth rates as the key macroeconomic variables.
No adjustments were deemed to be necessary in respect of the wholesale portfolio since movements in the CPI and short-term interest rates
are captured as part of the macroeconomic variables utilised within the wholesale portfolio model. In addition, given that more information is
available to management in respect of corporate borrowers compared to individual borrowers, the potential impact of emerging risks on the
wholesale portfolio are deemed to be captured as part of the ongoing monitoring of credit risk at borrower level.
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 on previous pages. 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 2023 and 2022, the sensitivity of the ECL outcome to the economic forecasts was assessed by recalculating the ECL under
the scenarios described on previous pages for the wholesale and retail portfolios, applying a 100% weighting to each scenario in turn. In this
respect, the credit loss allowances estimated on the basis of an assumption that the ECL outcome was determined solely on the basis of each
respective scenario are presented in the table below.
The ECL calculated for the Upside and Downside scenarios should not be taken to represent the upper and lower limits of possible ECL
outcomes. The impact of defaults that might occur in the future under different economic scenarios is captured by recalculating ECL for loans at
the balance sheet date. There is a particularly high degree of estimation uncertainty in numbers representing more severe risk scenarios when
assigned a 100% weighting.
For wholesale credit risk exposures, the sensitivity analysis excludes the ECL related to defaulted (stage 3) obligors. It is generally impracticable
to separate the effect of macroeconomic factors in individual assessments of obligors in default. The measurement of stage 3 ECL is relatively
more sensitive to credit factors specific to the obligor than future economic scenarios, and loans to defaulted obligors are a small portion of the
overall wholesale lending exposure, even if representing the majority of the allowance for ECL. Therefore, the ECL in respect of wholesale stage
3 exposures is assumed to remain constant across the sensitivity outcomes presented in the table below.
For retail credit risk exposures, the sensitivity analysis includes ECL for loans and advances to customers related to defaulted obligors. This is
because the retail ECL for secured mortgage portfolios including loans in all stages is sensitive to macroeconomic variables.
The wholesale and retail sensitivity analysis is stated inclusive of management judgemental adjustments, as appropriate to each scenario.
Accordingly, the management judgemental adjustments modelled in respect of both comparative periods and referred to previously are
assumed to remain constant across the sensitivity outcomes presented in the table below. Additionally, in both the wholesale and retail
analysis, the comparative period results for Downside 2 scenarios are also not directly comparable with the current period, because they reflect
different risk profiles relative to the consensus scenarios for the period end.

ECL sensitivity: Applying a 100% weighting to each respective scenario - 2023
| Weighted average ECL | Consensus scenarios | Downside 2 scenario
Central | Upside | Downside
| €000 | €000 | €000 | €000 | €000
Wholesale lending | 12,843 | 12,402 | 11,111 | 14,718 | 19,167
Personal lending | 26,629 | 26,436 | 25,983 | 27,307 | 33,493

ECL sensitivity: Applying a 100% weighting to each respective scenario - 2022
| Weighted average ECL | Consensus scenarios | Downside 2 scenario
Central | Upside | Downside
| €000 | €000 | €000 | €000 | €000
Wholesale lending | 14,343 | 12,108 | 10,003 | 15,419 | 25,997
Personal lending | 27,901 | 22,321 | 21,664 | 23,187 | 29,987

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 123

In addition, in view of the expert judgement applied in the calibration of weightings applied to unemployment and real GDP growth rates in the
estimation of ECLs in respect of exposures classified within the retail mortgage portfolio, another sensitivity was assessed and considered by
estimating the ECL outcome using different weighting combinations. In this respect, the ECL outcome under three sets of weightings is
presented in the table below:

ECL sensitivity: Applying different sets of weightings to macroeconomic variables
| Weighted average
| €000
Unemployment 80% : Real GDP growth rate 20% | 24,646
Unemployment 100% : Real GDP growth rate 0% | 25,194
Unemployment 0% : Real GDP growth rate 100% | 25,670

The sensitivity presented in the table above relates to the carrying amount of the retail mortgage portfolio, which comprises first lien and second
lien residential mortgages, together with the respective accrued interest attributable to the same portfolio. In this respect, the weighted average
ECL under the year-end calibration of weightings (Unemployment 80% : Real GDP growth rate 20%) cannot be agreed to the amounts
presented in other tables.
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)(iii).

Debt securities and other bills by rating agency
| Treasury Bills | Debt securities | Total
| €000 | €000 | €000
– measured at fair value through other comprehensive income | 385,580 | 456,930 | 842,510
AAA | 39,574 | 38,335 | 77,909
AA- to AA+ | 233,557 | 41,818 | 275,375
A- | 112,449 | 376,777 | 489,226
– measured at amortised cost | — | 858,886 | 858,886
AAA | — | 446,725 | 446,725
AA- to AA+ | — | 341,768 | 341,768
A- | — | 70,393 | 70,393
At 31 Dec 2023 | 385,580 | 1,315,816 | 1,701,396
– measured at fair value through other comprehensive income | 242,292 | 637,709 | 880,001
AAA | — | 101,233 | 101,233
AA- to AA+ | — | 70,818 | 70,818
A- | 242,292 | 465,658 | 707,950
– measured at amortised cost | 42,202 | 367,024 | 409,226
AAA | — | 227,655 | 227,655
AA- to AA+ | — | 118,910 | 118,910
A- | 42,202 | 20,459 | 62,661
At 31 Dec 2022 | 284,494 | 1,004,733 | 1,289,227

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 Over-the-Counter (‘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 trading
derivative market risk positions principally through back-to-back derivative transactions with HSBC Group entities in respect of derivatives
forming part of fair value designated relationships. 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 €13,050,000 (2022: €24,086,000) 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 €446,000 (2022: €1,587,000) 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.
This section presents information about the bank’s exposure to liquidity risk, together with its objectives, policies and processes for measuring
and managing this risk.
The risks arising from financial instruments relating to the insurance subsidiary company are disclosed in Note 4(f) of these financial statements.
The objective of the bank’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 bank maintains a diversified and stable funding base. The funding base comprises core personal and
Notes on the financial statements

124 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

corporate customer deposits as well as wholesale funding, whereas the bank’s liquidity position comprises portfolios of highly liquid assets with
the objective of enabling the bank 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 bank’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
– 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
bank’s funding, and thus considerable importance is placed on maintaining their stability. For deposits, stability depends upon maintaining
depositor confidence in the bank’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.
i Liquidity 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.
During the financial years ended 31 December 2023 and 2022, the LCR was in excess of both the regulatory minimum and the risk appetite
thresholds set by the bank.
ii Net 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.
The bank calculates the NSFR in line 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.
During the financial years ended 31 December 2023 and 2022, the NSFR was in excess of both the regulatory minimum and the risk appetite
thresholds set by the bank.
iii Depositor 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 2023 and 2022 , the bank was within the risk appetite levels set for depositor concentration and term funding maturity
concentration.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 125

iv Contractual 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):

Financial assets and liabilities (excluding financial instruments relating to HSBC Life Assurance (Malta) Ltd) by remaining contractual maturities
| Bank
| At 31 Dec 2023
| 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 | 33,582 | — | — | — | — | — | 33,582
Balances with Central Bank of Malta and Treasury Bills | 1,291,702 | 160,941 | 132,687 | — | — | 57,727 | 1,643,057
Items in the course of collection from other banks | 8,427 | — | — | — | — | — | 8,427
Derivatives | 798 | 632 | 997 | 9,576 | 1,574 | — | 13,577
Loans and advances to banks | 614,640 | — | 1,500 | 100,000 | — | — | 716,140
Loans and advances to customers | 290,047 | 12,695 | 46,303 | 310,550 | 2,424,248 | — | 3,083,843
Financial investments | 15,824 | 18,076 | 97,082 | 1,184,784 | 50 | 41 | 1,315,857
Other assets | 26,796 | — | — | — | — | 1,760 | 28,556
Total assets | 2,281,816 | 192,344 | 278,569 | 1,604,910 | 2,425,872 | 59,528 | 6,843,039
Liabilities |  |  |  |  |  |  |
Deposits by banks | 5,117 | — | — | — | — | — | 5,117
Customer accounts | 5,733,149 | 168,836 | 222,687 | 47,597 | — | — | 6,172,269
Items in course of transmission to other banks | 18,359 | — | — | — | — | — | 18,359
Derivatives | 737 | 564 | 929 | 1,960 | 1,558 | — | 5,748
Borrowings from a group undertaking | — | — | — | 30,000 | 60,000 | — | 90,000
Subordinated liabilities | — | — | — | — | 65,000 | — | 65,000
Other liabilities | 7,780 | 948 | 2,375 | 1,295 | 845 | — | 13,243
Total liabilities | 5,765,142 | 170,348 | 225,991 | 80,852 | 127,403 | — | 6,369,736
Liquidity gap | (3,483,326) | 21,996 | 52,578 | 1,524,058 | 2,298,469 |  |
Cumulative liquidity gap | (3,483,326) | (3,461,330) | (3,408,752) | (1,884,694) | 413,775 |  |
| At 31 Dec 2022
Assets |  |  |  |  |  |  |
Cash | 29,500 | — | — | — | — | — | 29,500
Balances with Central Bank of Malta and Treasury Bills | 1,452,279 | 22,765 | 19,437 | — | — | 59,367 | 1,553,848
Items in the course of collection from other banks | 6,921 | — | — | — | — | — | 6,921
Derivatives | 982 | 920 | 1,232 | 20,162 | 2,449 | — | 25,745
Loans and advances to banks | 548,524 | 10,564 | 67,129 | 100,000 | — | — | 726,217
Loans and advances to customers | 283,203 | 7,479 | 25,984 | 359,203 | 2,499,298 | — | 3,175,167
Financial investments | 9,226 | 78,980 | 129,492 | 761,219 | 25,816 | 35 | 1,004,768
Other assets | 26,140 | — | — | — | — | 1,513 | 27,653
Total assets | 2,356,775 | 120,708 | 243,274 | 1,240,584 | 2,527,563 | 60,915 | 6,549,819
Liabilities |  |  |  |  |  |  |
Deposits by banks | 2,861 | — | — | — | — | — | 2,861
Customer accounts | 5,580,808 | 131,912 | 242,138 | 55,534 | — | — | 6,010,392
Items in course of transmission to other banks | 27,397 | — | — | — | — | — | 27,397
Derivatives | 925 | 865 | 1,164 | 4,854 | 2,444 | — | 10,252
Borrowings from a group undertaking | — | — | — | — | 60,000 | — | 60,000
Subordinated liabilities | — | — | — | — | 62,000 | — | 62,000
Other liabilities | 6,908 | 355 | 1,171 | 1,291 | 920 | — | 10,645
Total liabilities | 5,618,899 | 133,132 | 244,473 | 61,679 | 125,364 | — | 6,183,547
Liquidity gap | (3,262,124) | (12,424) | (1,199) | 1,178,905 | 2,402,199 |  |
Cumulative liquidity gap | (3,262,124) | (3,274,548) | (3,275,747) | (2,096,842) | 305,357 |  |

At 31 December 2023, current accounts and savings deposits payable on demand or at short notice amounted to €5,408 million at 31 December
2023 (2022: €5,316 million). 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 bank’s funding. The bank places considerable importance on maintaining the stability of these
deposits.
Overdraft and credit card balances included within ‘Loans and advances to customers’ amounted to €227 million at 31 December 2023 (2022:
€200 million). This amount is also disclosed within the ‘Not more than three months’ maturity grouping.
Notes on the financial statements

126 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

v Cash flows payable by the bank 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):

Cash flows payable under non-derivative financial liabilities
| Bank
| At 31 Dec 2023
| Due within 3 months €000 | Due between 3 and 12 months €000 | Due between 1 and 5 years €000 | Due after 5 years €000 | Gross nominal outflow €000 | Carrying amount €000
Financial liabilities |  |  |  |  |  |
Deposits by banks | 5,117 | — | — | — | 5,117 | 5,117
Customer accounts | 5,736,402 | 395,918 | 48,232 | — | 6,180,552 | 6,172,269
Borrowings from a group undertaking | 1,157 | 3,471 | 44,203 | 69,184 | 118,015 | 90,000
Subordinated liabilities | 1,028 | 3,085 | 81,453 | 20,566 | 106,132 | 65,000
Other liabilities | 7,780 | 3,323 | 1,295 | 845 | 13,243 | 13,243
| 5,751,484 | 405,797 | 175,183 | 90,595 | 6,423,059 | 6,345,629
Commitments and contingent liabilities | 1,039,104 | — | — | — | 1,039,104 | 1,039,104
| At 31 Dec 2022
Financial liabilities |  |  |  |  |  |
Deposits by banks | 2,861 | — | — | — | 2,861 | 2,861
Customer accounts | 5,581,337 | 374,463 | 57,345 | — | 6,013,145 | 6,010,392
Borrowings from a group undertaking | 488 | 1,463 | 7,802 | 67,802 | 77,555 | 60,000
Subordinated liabilities | 637 | 1,912 | 10,198 | 64,549 | 77,296 | 62,000
Other liabilities | 6,908 | 1,526 | 1,291 | 920 | 10,645 | 10,645
| 5,592,231 | 379,364 | 76,636 | 133,271 | 6,181,502 | 6,145,898
Commitments and contingent liabilities | 1,024,570 | — | — | — | 1,024,570 | 1,024,570

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 bank’s derivative financial instruments by
remaining contractual maturities at the reporting date:

Contracted undiscounted cash flows
| Bank
| At 31 Dec 2023
| 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 | 86,327 | 166,299 | 92,994 | 25 | 345,645
Outflows | (84,490) | (161,496) | (79,842) | (25) | (325,853)
| 1,837 | 4,803 | 13,152 | — | 19,792
| At 31 Dec 2022
Inflows | 70,051 | 142,061 | 117,931 | 128 | 330,171
Outflows | (69,828) | (140,854) | (113,337) | (128) | (324,147)
| 223 | 1,207 | 4,594 | — | 6,024

(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
local 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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 127

Encumbered and unencumbered assets
| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Total assets at 31 Dec | 7,660,919 | 7,336,646 | 6,986,350 | 6,689,880
Less: |  |  |  |
Debt securities pledged in terms of the Depositor Compensation Scheme | 13,262 | 11,105 | 13,262 | 11,105
Less: |  |  |  |
Cash pledged in terms of the Recovery and Resolution Regulations | 1,760 | 1,513 | 1,760 | 1,513
Less: |  |  |  |
Other assets that cannot be pledged as collateral | 838,432 | 901,774 | 172,199 | 182,188
Assets available to support funding and collateral needs at 31 Dec | 6,807,465 | 6,422,254 | 6,799,129 | 6,495,074

Out of the €6,808,000,000 (2022: €6,422,000,000) assets available for the local group and €6,799,000,000 (2022: €6,495,000,000) for the bank,
€3,873,000,000 (2022: €3,975,000,000) do not form part of the local group’s and the bank’s HQLA and are therefore not categorised as liquid
assets. Debt securities and loans and advances to customers pledged against the provision of credit lines by the Central Bank of Malta
amounting to €93,113,000 and €109,665,000 respectively (2022: €82,760,000 and €100,615,000) are being treated as unencumbered assets
since the nature of these exposures makes them available for immediate release.
The total Irrevocable Payment Commitments (‘IPC’) made during the financial year ended 31 December 2023 amounted to €247,000 (2022:
€241,000).
The debt securities pledged in terms of the Depositor Compensation Scheme increased by €2,157,000 during the financial year ended
31 December 2023. During the financial year ended 31 December 2022, there was a reduction in the debt securities pledged amounting to
€8,916,000. This reduction is attributable to a revision in the calculation in line with legal notice Depositor Compensation Scheme (Amendment
No.2) 262 of 2022.
(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 and financial
investments measured at amortised cost.
Similar to the case with liquidity risk, this section presents information about the bank’s exposure to market risk, together with its objectives,
policies and processes for measuring and managing this risk, excluding risks arising from financial instruments relating to the bank’s
subsidiaries.
The risks arising from financial instruments relating to the insurance subsidiary company are disclosed in Note 4(f) of these financial statements,
whereas the risks arising from financial instruments relating to the asset management subsidiary company are deemed to be insignificant.
The objective of the bank’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 bank’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. 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.
The bank transacts derivatives primarily to create risk management solutions for clients, referred to as 'trading derivatives', and to manage and
hedge own risks, referred to as 'hedge accounting derivatives'.
Trading derivatives represent a product offering to the bank's customers, enabling them to take, transfer, modify or reduce current or expected
risks in relation to foreign exchange and interest rate risk. All such positions are covered by back-to-back derivative transactions with HSBC
Group entities, managing the market risk arising from these positions.
In response to increases in market interest rates during the financial year ended 31 December 2022, the bank implemented a risk management
strategy to hedge the exposure to interest rate risk in respect of the fair value of debt instruments measured at FVOCI. In this respect, the bank
entered into interest rate swap derivative contracts to protect against changes in the fair value of fixed-rate long-term debt instruments due to
movements in market interest rates.
Hedge accounting derivatives are used in the management of interest rate risk in respect of the bank's own asset portfolio and to hedge against
unfavourable fair value movements in its portfolio of debt instruments measured at fair value through other comprehensive income.
i 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.
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.
Notes on the financial statements

128 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Value at risk (‘VaR’)
VaR is a technique that estimates the potential losses on risk positions in a portfolio as a result of movements 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 bank 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% 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 bank routinely validates the accuracy of the VaR models by back-testing the hypothetical daily results.
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% 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 bank recognises these limitations and thus resorts to the use of other tools.

VaR for the bank
| 2023 | 2022
| €000 | €000
At 31 Dec | 1,453 | 1,215
Average | 1,873 | 978
Minimum | 1,002 | 649
Maximum | 2,576 | 1,827

The bank also performs a sensitivity of capital and reserves to movements in market interest rates through the use of a hold-to-collect-and-sell
stressed VaR, which is a quantification of the potential losses to a 99% confidence level of the portfolio of high-quality liquid assets held under a
hold-to-collect-and-sell business model and classified within 'Financial investments'. The mark-to-market of this portfolio therefore has an impact
on the bank's capital ratio. Stressed VaR is quantified based on the worst losses over a one-year period, assuming a holding period of 60 days.
During the financial year ended 2023 started calculating stressed VaR on the hold-to-collect financial investments. At 31 December 2023, the
stressed VaR of the hold-to-collect-and sell and hold-to-collect portfolio was €17,200,000 (2022: €14,600,000) and €113,000,000 respectively.
Stress testing
Stress testing is an important tool that is integrated into the bank’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.
ii Interest rate risk
Interest rate risk in the banking book is the risk of an adverse impact to earnings or capital due to changes in market interest rates. It is
generated by the bank's non-traded assets and liabilities, specifically loans, deposits and financial instruments that are not held for trading intent
or in order to hedge positions held with trading intent. The bank's ALCO is responsible for oversight over the bank's interest rate risk
management process and actively uses a net interest income sensitivity to monitor and control interest rate risk in the banking book.
During the financial year ended 31 December 2022, the bank entered into interest rate swap derivative contracts to protect against changes in
the fair value of fixed-rate long-term debt instruments due to movements in market interest rates. These contracts, which where maintained
throughout the financial year ended 31 December 2023, qualify as fair value hedges for accounting purposes, with all changes in the fair value of
the hedge accounting derivative (the 'hedging instrument') and in the fair value of the item in relation to the risk being hedged (the 'hedged
item') being recognised in the income statement.
Sensitivity of net interest income
A principal element of the bank’s management of interest rate risk is monitoring the sensitivity of projected net interest income under varying
interest rate scenarios (simulation modelling). The bank 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 bank to mitigate the effect of interest rate risk. In reality, the bank actively seeks to change the interest rate risk profile to minimise
losses and optimise net revenues.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 129

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. These profiles and policies were reviewed by business
heads and approved by ALCO.

Impact on future one year net income
| Bank
| Impact on future one year net income | Impact on future one year net income
| 2023 | 2022
| €000 | €000
+ 100 basis points | 26,077 | 32,596
- 100 basis points | (24,499) | (35,621)

Sensitivity of capital and reserves
The bank holds a portfolio of high-quality liquid assets held under a hold-to-collect-and-sell business model. The portfolio, together with any
associated derivatives in designated hedge accounting relationships, is accounted for at fair value through other comprehensive income and has
an impact on the bank’s capital base. The bank manages the risk attributable to this portfolio with a variety of tools, including risk sensitivities
and value at risk measures.
The below table measures the sensitivity of the value of this portfolio to an instantaneous 100 basis point increase in interest rates.

Sensitivity of Hold-to-Collect & Sell reserves to interest rate movements
| Bank
| Impact on reserves | Impact on reserves
| 2023 | 2022
| €000 | €000
+100 basis point parallel move in all yield curves | (2,404) | (2,990)
As a percentage of total shareholders’ equity (%) | (0.46) | (0.65)

The figures in the table above do not take into account the effects of interest rate convexity. The portfolio is mostly comprised of vanilla
sovereign bonds and the primary risk is interest rate duration risk, although the portfolio also generates asset swap, credit spread and asset
spread risks that are managed within appetite as part of the bank’s risk management framework. A -100bp shock would lead to an
approximately symmetrical gain.
Notes on the financial statements

130 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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. 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.

| Bank
| At 31 Dec 2023
| Not more than 3 months €000 | Between 3 and 6 months €000 | Between 6 months and 1 year €000 | Between 1 year and 5 years €000 | More than 5 years €000 | Total €000
Assets |  |  |  |  |  |
Balances with Central bank of Malta and Treasury Bills | 1,291,702 | 160,941 | 132,687 | — | — | 1,585,330
Loans and advances to banks | 614,640 | — | 1,500 | 100,000 | — | 716,140
Loans and advances to customers | 2,814,661 | — | — | 269,182 | — | 3,083,843
Financial investments | 363,754 | 505,161 | 446,901 | — | — | 1,315,816
Total assets | 5,084,757 | 666,102 | 581,088 | 369,182 | — | 6,701,129
Liabilities |  |  |  |  |  |
Deposits by banks | 5,117 | — | — | — | — | 5,117
Customer accounts | 5,733,149 | 168,836 | 222,687 | 47,597 | — | 6,172,269
Borrowings from a group undertaking | 90,000 | — | — | — | — | 90,000
Subordinated liabilities | 65,000 | — | — | — | — | 65,000
Total liabilities | 5,893,266 | 168,836 | 222,687 | 47,597 | — | 6,332,386
Interest rate sensitivity gap | (808,509) | 497,266 | 358,401 | 321,585 | — |
Cumulative interest rate sensitivity gap | (808,509) | (311,243) | 47,158 | 368,743 | 368,743 |
| At 31 Dec 2022
Assets |  |  |  |  |  |
Balances with Central bank of Malta and Treasury Bills | 1,452,279 | 22,765 | 19,437 | — | — | 1,494,481
Loans and advances to banks | 698,525 | 10,564 | 17,128 | — | — | 726,217
Loans and advances to customers | 2,795,616 | 48,961 | 103,703 | 226,887 | — | 3,175,167
Financial Investments | 14,196 | 78,980 | 125,478 | 760,263 | 25,816 | 1,004,733
Total assets | 4,960,616 | 161,270 | 265,746 | 987,150 | 25,816 | 6,400,598
Liabilities |  |  |  |  |  |
Deposits by banks | 2,861 | — | — | — | — | 2,861
Customer accounts | 5,580,808 | 131,912 | 242,138 | 55,534 | — | 6,010,392
Borrowings from a group undertaking | 60,000 | — | — | — | — | 60,000
Subordinated liabilities | 62,000 | — | — | — | — | 62,000
Total liabilities | 5,705,669 | 131,912 | 242,138 | 55,534 | — | 6,135,253
Interest rate sensitivity gap | (745,053) | 29,358 | 23,608 | 931,616 | 25,816 |
Cumulative interest rate sensitivity gap | (745,053) | (715,695) | (692,087) | 239,529 | 265,345 |

Balances with Central Bank of Malta included in above tables relate to balances subject to interest rate risk.
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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 131

iii 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).

| Bank
| 2023
| 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 | 1,675,387 | 508 | 439 | 305 | 1,676,639
Items in the course of collection from other banks | 8,419 | 6 | 2 | — | 8,427
Derivatives | 10,032 | 3,488 | 7 | 50 | 13,577
Loans and advances to banks | 206,554 | 386,233 | 97,621 | 25,732 | 716,140
Loans and advances to customers | 3,050,753 | 32,768 | 322 | — | 3,083,843
Financial investments | 1,298,146 | 5,706 | 10,772 | 1,233 | 1,315,857
Other assets | 27,996 | 470 | 69 | 21 | 28,556
Total assets | 6,277,287 | 429,179 | 109,232 | 27,341 | 6,843,039
Liabilities |  |  |  |  |
Deposits by banks | 5,066 | — | — | 51 | 5,117
Customer accounts | 5,611,988 | 424,656 | 108,763 | 26,862 | 6,172,269
Items in the course of transmission to other banks | 18,359 | — | — | — | 18,359
Derivatives | 2,539 | 3,160 | 3 | 46 | 5,748
Borrowings from a group undertaking | 90,000 | — | — | — | 90,000
Subordinated liabilities | 65,000 | — | — | — | 65,000
Other liabilities | 11,260 | 1,089 | 885 | 9 | 13,243
Total liabilities | 5,804,212 | 428,905 | 109,651 | 26,968 | 6,369,736
Net open position | 473,075 | 274 | (419) | 373 |
| 2022
Assets |  |  |  |  |
Balances with Central Bank of Malta, Treasury Bills and cash | 1,581,906 | 545 | 455 | 442 | 1,583,348
Items in the course of collection from other banks | 6,902 | 5 | 14 | — | 6,921
Derivatives | 19,493 | 6,252 | — | — | 25,745
Loans and advances to banks | 241,726 | 302,840 | 107,469 | 74,182 | 726,217
Loans and advances to customers | 3,136,510 | 38,528 | 129 | — | 3,175,167
Financial investments | 958,302 | 17,455 | 21,156 | 7,855 | 1,004,768
Other assets | 24,930 | 2,578 | 68 | 77 | 27,653
Total assets | 5,969,769 | 368,203 | 129,291 | 82,556 | 6,549,819
Liabilities |  |  |  |  |
Deposits by banks | 2,392 | — | — | 469 | 2,861
Customer accounts | 5,438,715 | 355,354 | 129,790 | 86,533 | 6,010,392
Items in the course of transmission to other banks | 27,397 | — | — | — | 27,397
Derivatives | 4,382 | 5,870 | — | — | 10,252
Borrowings from a group undertaking | 60,000 | — | — | — | 60,000
Subordinated liabilities | 62,000 | — | — | — | 62,000
Other liabilities | 7,913 | 2,075 | 647 | 10 | 10,645
Total liabilities | 5,602,799 | 363,299 | 130,437 | 87,012 | 6,183,547
Net open position | 366,970 | 4,904 | (1,146) | (4,456) |

All derivatives are transacted primarily to create risk management solutions for clients and to manage and hedge own risks. All trading
derivatives 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 local group 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 risks under any insurance contract are 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, these risks are 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 insurance
subsidiary faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance
Notes on the financial statements

132 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

liabilities. This could occur when 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 insurance subsidiary company 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. The participating nature of
contracts with Discretionary Participation Feature (‘DPF’), results in a significant portion of the insurance risk being shared with the insured
party.
Financial risk
The local group’s insurance subsidiary company is exposed to financial risk through its financial assets, financial liabilities (investment contracts),
reinsurance contract 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 main components of financial risk are market
risk, credit risk and liquidity risk. Financial risk has been heightened in recent years through the period of market volatility that has been brought
about by Central Banks’ policies to control inflation.
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 local group. The insurance subsidiary company is however exposed indirectly for unit-linked insurance and
investment contracts as changes in unit price will have an impact on the expected management charges the local group is expecting to receive,
and therefore on CSM or profit after for any onerous groups of contracts.
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. The local group aims to
pay out 90% of the eligible investment return to policyholders by way of bonuses before any deductions for withholding tax. Policyholders
receive regular (revisionary) bonus, and 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. The local group minimises
interest rate risks primarily by matching estimated future cash outflows to be paid to policyholders by 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.
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 €6,065,000 (2022 : €5,863,000) and a sensitivity analysis is not deemed
necessary on the basis of the 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 following table illustrates the effects of selected interest rate and equity price scenarios on profit for the year and total equity.
Due in part to the impact of the cost of guarantees and also due to CSM and onerous groups, the relationship between the profit and total
equity and the risk factors is non-linear. Therefore, the results disclosed should not be extrapolated to measure sensitivities to different levels of
stress. For the same reason, the impact of the stress is not necessarily symmetrical on the upside and downside.

Sensitivity to market risk factors |
| 2023
| Effect on profit after tax | Effect on CSM | Effect on total equity
| €000 | €000 | €000
+100 basis points shift in yield curves |  |  |
– Insurance and Reinsurance Contracts | 3,003 | (411) | 3,003
– Financial Instruments | (2,984) | — | (2,984)
-100 basis points shift in yield curves |  |  |
– Insurance and Reinsurance Contracts | (4,610) | 446 | (4,610)
– Financial Instruments | 3,348 | — | 3,348
10% increase in equity prices |  |  |
– Insurance and Reinsurance Contracts | 356 | 646 | 356
10% decrease in equity prices |  |  |
– Insurance and Reinsurance Contracts | (694) | (127) | (694)

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 133

Sensitivity to market risk factors (continued) |
| 2022
| Effect on profit after tax | Effect on CSM | Effect on total equity
| €000 | €000 | €000
+100 basis points shift in yield curves |  |  |
– Insurance and Reinsurance Contracts | 3,271 | (216) | 3,271
– Financial Instruments | (2,359) | — | (2,359)
-100 basis points shift in yield curves |  |  |
– Insurance and Reinsurance Contracts | (4,404) | 256 | (4,404)
– Financial Instruments | 2,601 | — | 2,601
10% increase in equity prices |  |  |
– Insurance and Reinsurance Contracts | 408 | 361 | 408
10% decrease in equity prices |  |  |
– Insurance and Reinsurance Contracts | (407) | (363) | (407)

No sensitivities were provided on foreign exchange risk as not considered to be material.
iii Credit risk
The main areas where the insurance subsidiary company is exposed to credit risk are:
– reinsurance contract assets;
– investment portfolios of debt securities (within Financial investment); and
– cash and cash equivalents.
Investments in bonds are made within the credit limits permitted within the investment credit risk mandate conferred by HSBC Group.
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.
Reinsurance is used to manage insurance risk and non-performance risk is considered when measuring the fulfilment cashflows. 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 as a part of any tender activity prior to finalisation of
any contract for new business. The reinsurance contract asset balance in the statement of financial position represents the maximum exposure
to credit risk at the end of the reporting period.
Other assets amount to €2,397,000 (2022: €2,344,000), and it includes accrued interest amounting to €2,508,000 (2022: €2,418,000) which
would follow a similar rating profile to debt securities below.
Cash and cash equivalents held with third party banks amount to €22,000 (2022: €2,772,000). Of this amount there was no balance (2022:
€531,000) held with counterparties that are rated BBB and above. The other third party bank balance €22,000 (2022: €2,241,000) is held with an
unrated local bank of good standing. In line with IFRS 9, the insurance subsidiary company measures credit risk and expected credit losses
using probability of default, exposure at default and loss given default. Management considers both historical analysis and forward looking
information in determining any expected credit loss. At 31 December 2023 and 2022 cash deposits were held with reputable counterparties and
were due on demand. Management considers 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 local 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
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000 | €000 | €000
AAA | — | — | 1,884 | 5,633 | 1,884 | 5,633
AA+ to AA- | — | — | 34,705 | 30,791 | 34,705 | 30,791
A+ to A- | — | 457 | 138,101 | 131,237 | 138,101 | 131,694
BBB+ to BBB- | — | 734 | 43,595 | 44,433 | 43,595 | 45,167
BB+ to B- | — | 240 | — | — | — | 240
Unrated | — | 1,841 | 14,079 | 15,699 | 14,079 | 17,540
Total | — | 3,272 | 232,364 | 227,793 | 232,364 | 231,065

The insurance subsidiary company is not exposed to credit risk in respect of unit-linked business, although the relevant credit information is
disclosed.
iv Liquidity risk
Liquidity risk 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. 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.
Notes on the financial statements

134 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

The following table shows the contractual maturity of financial assets as at the reporting date.

Contractual maturities of financial assets
| At 31 Dec 2023
| No fixed maturity | less than 1 year | 1 -2 years | 2 -3 years | 3 - 4 years | 4 - 5 years | Due after 5 years | Total
| €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
Financial assets mandatorily measured at fair value through profit or loss | 460,660 | 29.353 | 12,531 | 18,302 | 19,515 | 15.957 | 136,706 | 693,024
Reinsurance contract assets | 2,557 | — | — | — | — | — | — | 2,557
Cash | 4,443 | — | — | — | — | — | — | 4,443
| 467,660 | 29.353 | 12,531 | 18,302 | 19,515 | 15.957 | 136,706 | 700,024
| At 31 Dec 2022
Financial assets mandatorily measured at fair value through profit or loss | 429,354 | 18.604 | 35,469 | 18,420 | 21,697 | 27,547 | 109,355 | 660,446
Reinsurance contract assets | 2,959 | — | — | — | — | — | — | 2,959
Cash | 6,290 | — | — | — | — | — | — | 6,290
| 438,603 | 18.604 | 35,469 | 18,420 | 21,697 | 27,547 | 109,355 | 669,695

The following table shows the cash flows expected to arise pertaining to insurance and investment liabilities, including reinsurance contracts, as
at the reporting date.

Cash flows of insurance and investment liabilities
| At 31 Dec 2023
| On demand | less than 1 year | 1 -2 years | 2 -3 years | 3 - 4 years | 4 - 5 years | Due after 5 years | Total
| €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
Liabilities to customers: |  |  |  |  |  |  |  |
Life direct participating and investment DPF contracts | 3,760 | 7,459 | 3,104 | 4,141 | 27,874 | 22,425 | 383,085 | 451,848
Life contracts other | — | (3,552) | (6,562) | (5,975) | (5,536) | (5,006) | 19,312 | (7,319)
Reinsurance liabilities | — | 170 | 1,402 | 1,448 | 1,397 | 1,376 | 22,384 | 28,177
Investment contracts | 98,433 | 5,057 | 5,011 | 4,693 | 4,531 | 6,166 | 30,809 | 154,700
| 102,193 | 9,134 | 2,955 | 4,307 | 28,266 | 24,961 | 455,590 | 627,406
| At 31 Dec 2022
Liabilities to customers: |  |  |  |  |  |  |  |
Life direct participating and investment DPF contracts | — | 539 | 6,682 | 1,317 | 2,963 | 27,893 | 396,828 | 436,222
Life contracts other | — | (4,095) | (6,076) | (5,325) | (4,804) | (4,499) | 19,340 | (5,459)
Reinsurance liabilities | — | 827 | 780 | 811 | 817 | 786 | 11,934 | 15,955
Investment contracts | 104,754 | 948 | 3,105 | 3,142 | 3,207 | 3,284 | 43,683 | 162,123
| 104,754 | (1,781) | 4,491 | (55) | 2,183 | 27,464 | 471,785 | 608,841

Note 10 contains further disclosures pertaining to insurance and reinsurance contracts.
The methodology used for estimating cash outflows on liabilities to customers can be found below:
– Life direct participating and investment DPF contracts: derived via discounted unit and non-unit liabilities. All future premia are considered,
and provisions based on all expected decrements. The timing of cash flows is based on the expected run-off of the liabilities.
– Life contracts other: derived via discounted non-unit liabilities. All future premia are considered, and provisions based on all expected
decrements. The timing of cash flows is based on the expected run-off of the reserves.
– Re-insurance contracts: derived via discounted re-insurance liabilities. All future reinsurance premia are considered, and provisions based on
all expected re-insurance recoveries. The timing of cash flows is based on the expected run-off of the re-insurance liabilities.
– Investment contracts: 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.
v Insurance underwriting risk
Description and exposure
Insurance underwriting risk is the risk of loss through adverse experience in either timing or amount of insurance underwriting parameters (non-
economic assumptions). These parameters include mortality, morbidity, longevity, lapse and expense rates.
The principal risk faced by the local group is that, over time, the cost of the contract, including claims and benefits, may exceed the total amount
of premiums and investment income received.
The insurance risk profile and related exposures remain largely consistent with those observed at 31 December 2022.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 135

Sensitivities
The following table shows the sensitivity of profit and total equity to reasonably possible changes in non-economic assumptions. Mortality and
morbidity risk is typically associated with life insurance contracts. The effect on profit of an increase in mortality or morbidity depends on the
type of business being written.
Sensitivity to lapse rates depends on the type of contracts being written. An increase in lapse rates typically has a negative effect on profit due
to the loss of future income on the lapsed policies. However, some contract lapses have a positive effect on profit due to the existence of policy
surrender charges.
Expense rate risk is the exposure to a change in the allocated cost of administering insurance contracts. To the extent th at increased expenses
cannot be passed on to policyholders, an increase in expense rates will have a negative effect on our profits.

| Effect on CSM (gross)1 | Effect on profit after tax (gross)1 | Effect on profit after tax (net)2 | Effect on total equity (gross)1 | Effect on total equity (net)2
At 31 Dec 2023 | €000 | €000 | €000 | €000 | €000
10% increase in mortality and/or morbidity rates | (6,922) | 179 | (105) | 179 | (105)
10% decrease in mortality and/or morbidity rates | 7,032 | (196) | 108 | (196) | 108
10% increase in lapse rates | (64) | (527) | (597) | (527) | (597)
10% decrease in lapse rates | 309 | 397 | 479 | 397 | 479
10% increase in expense rates | (1,714) | (252) | (253) | (252) | (253)
10% decrease in expense rates | 1,708 | 255 | 255 | 255 | 255

At 31 Dec 2022 | €000 | €000 | €000 | €000 | €000
10% increase in mortality and/or morbidity rates | (7,166) | 88 | (110) | 88 | (110)
10% decrease in mortality and/or morbidity rates | 7,274 | (97) | 111 | (97) | 111
10% increase in lapse rates | 554 | (636) | (664) | (636) | (664)
10% decrease in lapse rates | (653) | 684 | 715 | 684 | 715
10% increase in expense rates | (1,452) | (248) | (248) | (248) | (248)
10% decrease in expense rates | 1,451 | 249 | 249 | 249 | 249

1 The ‘gross’ sensitivities impacts are provided before considering the impacts of reinsurance contracts held as risk mitigation.
2 The ‘net’ sensitivities impacts are provided after considering the impacts of reinsurance contracts held as risk mitigation.

5 | Fair value of financial and non-financial instruments

i Valuation 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(c).
ii Control 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.
Where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price
determination or validation is used. For inactive markets, direct observation of a traded price may not be possible. In these circumstances,the
local group sources 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
Notes on the financial statements

136 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

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.
iii Fair 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.
iv Critical 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 more 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 2023 | 137

v Disclosures in respect of fair values of financial instruments carried at fair value
The following table sets out the financial instruments by fair value hierarchy other than assets and liabilities attributable to the insurance
business within the scope of IFRS 17:

Financial instruments by fair value
| Group
| At 31 Dec 2023
| Valuation techniques
| Quoted market price | Using observable inputs | With significant unobservable inputs |
| Level 1 | Level 2 | Level 3 | Total
| €000 | €000 | €000 | €000
Assets |  |  |  |
Treasury Bills | 273,131 | 112,449 | — | 385,580
Derivatives | — | 13,577 | — | 13,577
Financial assets mandatorily measured at fair value through profit or loss | 684,821 | — | 8,203 | 693,024
Financial investments measured at fair value through other comprehensive income | 456,930 | — | 43 | 456,973
| 1,414,882 | 126,026 | 8,246 | 1,549,154
Liabilities |  |  |  |
Derivatives | — | 5,748 | — | 5,748
Liabilities under investment contracts | 156,958 | — | — | 156,958
| 156,958 | 5,748 | — | 162,706
| At 31 Dec 2022
Assets |  |  |  |
Treasury Bills | — | 242,292 | — | 242,292
Derivatives | — | 25,745 | — | 25,745
Financial assets mandatorily measured at fair value through profit or loss | 652,466 | — | 7,980 | 660,446
Financial investments measured at fair value through other comprehensive income | 637,709 | — | 37 | 637,746
| 1,290,175 | 268,037 | 8,017 | 1,566,229
Liabilities |  |  |  |
Derivatives | — | 10,252 | — | 10,252
Liabilities under investment contracts | 162,123 | — | — | 162,123
| 162,123 | 10,252 | — | 172,375
| Bank
| At 31 Dec 2023
Assets |  |  |  |
Treasury Bills | 273,131 | 112,449 | — | 385,580
Derivatives | — | 13,577 | — | 13,577
Financial investments measured at fair value through other comprehensive income | 456,930 | — | 41 | 456,971
| 730,061 | 126,026 | 41 | 856,128
Liabilities |  |  |  |
Derivatives | — | 5,748 | — | 5,748
| — | 5,748 | — | 5,748
| At 31 Dec 2022
Assets |  |  |  |
Treasury Bills | — | 242,292 | — | 242,292
Derivatives | — | 25,745 | — | 25,745
Financial investments measured at fair value through other comprehensive income | 637,709 | — | 35 | 637,744
| 637,709 | 268,037 | 35 | 905,781
Liabilities |  |  |  |
Derivatives | — | 10,252 | — | 10,252
| — | 10,252 | — | 10,252

The local group’s and bank’s assets categorised within Level 2 comprise Treasury Bills issued by the Government of Malta and financial assets
mandatorily measured at fair value comprising 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.
As at 31 December 2023, financial assets mandatorily measured at fair value through profit or loss categorised in Level 3 comprise investments
in UK Property Fund, European Property Fund and Mid-Market Debt Fund valued at €1,285,000, €3,667,000 (2022: €4,077,000) and €3,251,000
(2022: €3,903,000) respectively.
The UK Property Fund invests in a diversified range of property throughout the UK, principally but not exclusively in the retail, office and
industrial/warehouse sectors. The European Property Fund invests in a diversified portfolio of European commercial and residential property and
seeks opportunities to add value to the fund, whereas the European Mid-Market Debt Fund consists of predominantly senior debt to European
mid-market companies concentrating on primary market transactions, within Western Europe, focusing on the largest economies.
Notes on the financial statements

138 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

The investment in the UK Property Fund was transferred from Level 1 to Level 3 during the financial year ended 31 December 2023. While the
European Property Fund was transferred from Level 2 to Level 3 during the financial year ended 31 December 2022. In view of the absence of
quoted market prices or observable inputs for modelling the fair value of these assets, the fair value of the investment held is derived by
reference to net asset values sourced from custodians. The net asset value of the fund as at 31 December 2023 is based on unaudited financial
statements provided by the fund administrators, thereby making reference to significant unobservable inputs.
The following table shows a reconciliation of the fair value measurements in Level 3 of the fair value hierarchy:

Reconciliation of the fair value measurements in Level 3
| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Level 3 |  |  |  |
Financial assets mandatorily measured at fair value through profit or loss |  |  |  |
At 1 Jan | 7,980 | 4,610 | — | —
Disposal/redemptions | (693) | (738) | — | —
Transfer from Level 1 to Level 3 | 1,285 | — | — | —
Transfer from Level 2 to Level 3 | — | 4,077 | — | —
Changes in fair value (recognised in profit or loss) | (369) | 31 | — | —
At 31 Dec | 8,203 | 7,980 | — | —

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.
vi Disclosures in respect of fair values of non-financial instruments carried at fair value
Fair valuation of property
The local group’s land and buildings classified within property, plant and equipment were revalued on 31 December 2023 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 2023, 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 2023 and 2022, the carrying amounts of the local group’s land and buildings classified within property, plant and equipment
were adjusted to reflect the properties’ estimated open market value.
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 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); or
– 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, classified within property, plant and equipment, comprise commercial branches, bank offices and other
operational premises. All the recurring property fair value measurements at 31 December 2023 and 2022 use significant unobservable inputs
and are accordingly categorised within Level 3 of the fair value 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 financial years ended
31 December 2023 and 2022.
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 owner occupied property is reflected in the tables in Note 32.

| Group/Bank
| 2023 | 2022
| €000 | €000
Assets |  |
Property | 46,122 | 38,092

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 139

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.
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 predominantly using 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 5.19% – 8.09%
(2022: 5.25% – 6.46%), 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 Dec 2023
| 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 | 46,122 | Capitalised rental approach | Rental rate per square metre | 43 – 237 (135)
| At 31 Dec 2022
Current use as commercial branches, bank offices and other related premises | 38,092 | Capitalised rental approach | Rental rate per square metre | 43 – 217 (130)

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.
vii Disclosures in respect of fair values of financial instruments not carried at fair value
Certain financial instruments are carried at amortised cost.
The following table sets out the carrying amounts of these financial instruments:

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Assets |  |  |  |
Balances with Central Bank of Malta, Treasury Bills and cash | 1,291,059 | 1,341,056 | 1,291,059 | 1,341,056
Items in the course of collection from other banks | 8,427 | 6,921 | 8,427 | 6,921
Loans and advance to banks | 720,583 | 732,493 | 716,140 | 726,217
Loans and advance to customers | 3,083,843 | 3,175,167 | 3,083,843 | 3,175,167
Financial investments measured at amortised cost | 858,886 | 367,024 | 858,886 | 367,024
Accrued interest | 22,323 | 18,134 | 19,705 | 15,639
Other assets | 8,955 | 12,108 | 8,851 | 12,014
| 5,994,076 | 5,652,903 | 5,986,911 | 5,644,038
Liabilities |  |  |  |
Deposits by banks | 5,117 | 2,861 | 5,117 | 2,861
Customer accounts | 6,141,520 | 5,970,958 | 6,172,269 | 6,010,392
Items in the course of transmission to other banks | 18,359 | 27,397 | 18,359 | 27,397
Borrowings from a group undertaking | 90,000 | 60,000 | 90,000 | 60,000
Subordinated liabilities | 65,000 | 62,000 | 65,000 | 62,000
Accrued interest | 4,976 | 1,864 | 4,771 | 1,677
Other liabilities | 24,039 | 14,193 | 8,472 | 8,968
| 6,349,011 | 6,139,273 | 6,363,988 | 6,173,295

As at 31 December 2023, financial instruments measured at amortised cost comprise debt instruments amounting to €858,886,000 (2022:
€367,024,000). The fair value of these financial instruments as at 31 December 2023, determined by reference to quoted market prices is
€854,664,000 (2022: €349,553,000).
As at 31 December 2022, financial instruments measured at amortised cost also included Treasury Bills issued by the Government of Malta
amounting to €42,202,000. The fair value of these financial instruments as at 31 December 2022, determined by reference to quoted market
prices is €42,186,000. As at 31 December 2023, the local group and bank did not hold Treasury Bills measured at amortised cost.
Notes on the financial statements

140 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

The fair value for these Treasury Bills is categorised as Level 2 given that fair value is determined on the basis of quoted prices in an inactive
market. The fair value for these debt instruments is categorised as Level 1, given that the fair value is determined by reference to quoted bid
market prices in active markets.
The fair values of the other financial instruments measured at amortised cost 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 local group has the ability to re-price
them at its own discretion, or because these are short-term in nature. 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 a 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.

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 commensurate in its
business, investing in accordance with its strategy and meeting both consolidated as well as local regulatory capital requirements at all times.
The information presented within this note reflects the prudential scope of consolidation, which excludes the insurance subsidiary and includes
the bank and the asset management subsidiary. In view of the fact that the prudential requirements are predominantly managed at bank level,
reference is being made to the bank throughout this note.
The capital management process culminates in the annual capital plan. The capital plan is approved by the Board and 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 bank’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 bank manages its capital requirements based on internal targets, which are set above the prescribed minimum levels established within the
Capital Requirements Regulation (‘CRR’).
For regulatory purposes, the bank’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 bank’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.
The bank 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.
During the financial years ended 31 December 2023 and 31 December 2022, the bank has met all external capital requirements at all times.
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 2023 and 31 December 2022, the
subsidiary has complied with all such externally imposed regulatory capital requirements.

7 | Interest and similar income

| Group/Bank
| 2023 | 2022
| €000 | €000
On balances with Central Bank of Malta | 42,977 | 5,062
On Treasury Bills | 6,845 | 690
On loans and advances to banks | 29,397 | 7,041
On loans and advances to customers | 116,636 | 101,154
On loans and advances to banks and customers and other financial assets | 195,855 | 113,947
Interest on debt instruments | 13,766 | 6,384
Amortisation of net premiums on debt instruments | 4,289 | (3,551)
Net loss representing ineffective portion of fair value hedges | (34) | (141)
On debt and other fixed income instruments | 18,021 | 2,692
| 213,876 | 116,639

Interest income recognised on credit impaired loans and advances during the financial year ended 31 December 2023, which is entirely included
in interest income on loans and advances to customers, amounted to €4,065,000 (2022: €4,546,000).

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 141

8 | Interest expense

| Group/Bank
| 2023 | 2022
| €000 | €000
On balances with Central Bank of Malta | — | 2,663
On Treasury Bills | — | 441
On loans and advances to banks | — | 182
On deposits by banks | 3,900 | 74
On customer accounts | 10,792 | 2,953
On lease liabilities | 53 | 38
On subordinated liabilities and borrowings from a group undertaking | 3,319 | 2,046
| 18,064 | 8,397

9 | Net fee income

| Group
| 2023
| Wealth and Personal Banking | Commercial Banking | Total
| €000 | €000 | €000
Fee income by product: |  |  |
Funds under management | 2,555 | — | 2,555
Cards | 4,558 | 439 | 4,997
Credit facilities | 7 | 1,374 | 1,381
Broking income | 835 | — | 835
Account services | 1,439 | 1,671 | 3,110
Remittances | 697 | 1,583 | 2,280
Imports/exports | — | 1,241 | 1,241
Receivables finance | — | 799 | 799
Insurance agency commission | 1,613 | — | 1,613
Other | 1,500 | 1,953 | 3,453
Fee income | 13,204 | 9,060 | 22,264
Less: fee expense | (2,520) | (271) | (2,791)
Net fee income | 10,684 | 8,789 | 19,473

| Group
| 2022 1
| Wealth and Personal Banking | Commercial Banking | Total
| €000 | €000 | €000
Fee income by product: |  |  |
Funds under management | 2,787 | — | 2,787
Cards | 4,600 | 367 | 4,967
Credit facilities | 108 | 1,474 | 1,582
Broking income | 1,022 | — | 1,022
Account services | 2,026 | 3,319 | 5,345
Remittances | 657 | 1,346 | 2,003
Imports/exports | — | 1,373 | 1,373
Receivables finance | — | 869 | 869
Insurance agency commission | 1,690 | — | 1,690
Other | 1,793 | 1,912 | 3,705
Fee income | 14,683 | 10,660 | 25,343
Less: fee expense | (3,322) | (367) | (3,689)
Net fee income | 11,361 | 10,293 | 21,654

1 From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative
information in respect of the financial year ended 31 December 2022 has been restated accordingly.
Notes on the financial statements

142 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

| Bank
| 2023
| Wealth and Personal Banking | Commercial Banking | Total
| €000 | €000 | €000
Fee income by product: |  |  |
Funds under management | — | — | —
Cards | 4,558 | 439 | 4,997
Credit facilities | 7 | 1,374 | 1,381
Broking income | 835 | — | 835
Account services | 1,439 | 1,671 | 3,110
Remittances | 697 | 1,583 | 2,280
Imports/exports | — | 1,241 | 1,241
Receivables finance | — | 799 | 799
Insurance agency commission | — | — | —
Other | 2,924 | 1,953 | 4,877
Fee income | 10,460 | 9,060 | 19,520
Less: fee expense | (2,128) | (271) | (2,399)
Net fee income | 8,332 | 8,789 | 17,121

| Bank
| 2022
| Wealth and Personal Banking | Commercial Banking | Total
| €000 | €000 | €000
Fee income by product: |  |  |
Funds under management | — | — | —
Cards | 4,600 | 367 | 4,967
Credit facilities | 108 | 1,474 | 1,582
Broking income | 1,022 | — | 1,022
Account services | 2,026 | 3,319 | 5,345
Remittances | 657 | 1,346 | 2,003
Imports/exports | — | 1,373 | 1,373
Receivables finance | — | 869 | 869
Insurance agency commission | — | — | —
Other | 3,317 | 1,912 | 5,229
Fee income | 11,730 | 10,660 | 22,390
Less: fee expense | (2,846) | (367) | (3,213)
Net fee income | 8,884 | 10,293 | 19,177

Net fee income amounting to €881,000 (2022: €1,069,000) is derived from the investment services activities of the local group. During the
financial years ended 31 December 2023 and 31 December 2022, none of the net fee income generated by the local group and bank was
attributable to the Global Markets segment.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 143

10 | Insurance business

From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative
information in respect of the financial year ended 31 December 2022 has been restated accordingly.
The table below represents an analysis of the total insurance revenue and expenses recognised in the period:

Insurance service result
| 2023 | 2022
| Life direct participating and investment DPF contracts 1 | Life other contracts 2 | Total | Life direct participating and investment DPF contracts | Life other contracts | Total
| €000 | €000 | €000 | €000 | €000 | €000
Insurance revenue |  |  |  |  |  |
Amounts relating to changes in liabilities for remaining coverage |  |  |  |  |  |
CSM recognised for services provided | 1,203 | 6,307 | 7,510 | 1,030 | 5,868 | 6,898
Change in risk adjustment for non-financial risk for risk expired | 249 | 201 | 450 | 218 | 252 | 470
Expected incurred claims and other insurance service expenses | 3,609 | 6,352 | 9,961 | 3,115 | 4,962 | 8,077
Recovery of insurance acquisition cash flows | 52 | 316 | 368 | 15 | 105 | 120
Total insurance revenue | 5,113 | 13,176 | 18,289 | 4,378 | 11,187 | 15,565
Insurance service expenses |  |  |  |  |  |
Incurred claims and other insurance service expenses | (2,909) | (3,006) | (5,915) | (2,693) | (2,068) | (4,761)
Losses and reversal of losses on onerous contracts | (1,284) | (221) | (1,505) | (440) | (154) | (594)
Amortisation of insurance acquisition cash flows | (52) | (316) | (368) | (15) | (105) | (120)
Total insurance service expenses | (4,245) | (3,543) | (7,788) | (3,148) | (2,327) | (5,475)
Insurance service results before reinsurance contracts | 868 | 9,633 | 10,501 | 1,230 | 8,860 | 10,090
Expenses from reinsurance premiums | — | (7,603) | (7,603) | — | (5,855) | (5,855)
Amounts recoverable from reinsurers for incurred claims | — | 2,132 | 2,132 | — | 1,043 | 1,043
Net expenses from reinsurance contracts | — | (5,471) | (5,471) | — | (4,812) | (4,812)
Insurance service results | 868 | 4,162 | 5,030 | 1,230 | 4,048 | 5,278

1 Life direct participating and investment DPF contracts are measured under the variable fee approach measurement model.
2 Life other contracts are measured under the general measurement model.

Net investment return
| 2023 | 2022
| Life direct participating and investment DPF contracts | Life other contracts | Other | Total | Life direct participating and investment DPF contracts | Life other contracts | Other | Total
| €000 | €000 | €000 | €000 | €000 | €000 |  | €000
Investment return |  |  |  |  |  |  |  |
Amounts recognised in profit or loss: |  |  |  |  |  |  |  |
Amounts recognised in OCI 2 |  |  |  |  |  |  |  |
Net gains/(losses) on FVPL investments | 42,064 | 5,794 | 11,355 | 59,213 | (62,696) | (12,774) | (16,365) | (91,835)
Movement in investment contract liabilities (Note 37) | — | — | (11,145) | (11,145) | — | — | 17,091 | 17,091
Total investment return (memorandum) | 42,064 | 5,794 | 210 | 48,068 | (62,696) | (12,774) | 726 | (74,744)
Changes in fair value of underlying items of direct participating contracts | (42,064) | — | — | (42,064) | 62,696 | — | — | 62,696
Effect of risk mitigation option | — | — |  | — | — | — |  | —
Interest accreted | — | (15) | — | (15) | — | (86) | — | (86)
Effect of changes in interest rates and other financial assumptions | — | (957) | — | (957) | — | 9,950 | — | 9,950
Effect of measuring changes in estimates at current rates and adjusting the CSM at rates on initial recognition | — | (881) | — | (881) | — | (714) | — | (714)
Total net finance (expense)/income from insurance contracts | (42,064) | (1,853) | — | (43,917) | 62,696 | 9,150 | — | 71,846
Represented by: |  |  |  |  |  |  |  |
Amounts recognised in profit or loss | — | — | — | — | — | — | — | —
Amounts recognised in OCI | — | — |  | — | — | — |  | —
Total net finance (expense)/income from reinsurance contracts | — | (377) | — | (377) | — | 4,650 | — | 4,650
Insurance finance (expense)/income | (42,064) | (2,230) | — | (44,294) | 62,696 | 13,800 | — | 76,496
Total net investment results | — | 3,564 | 210 | 3,774 | — | 1,026 | 726 | 1,752

Notes on the financial statements

144 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Movements in carrying amounts of insurance contracts liabilities - Analysis by remaining coverage and incurred claims
| 2023
| Life direct participating and investment DPF contracts | Life other contracts 1 |
| Liabilities for remaining coverage: |  | Liabilities for remaining coverage: |  |
| Excluding loss component | Loss component | Incurred claims | Total | Excluding loss component | Loss component | Incurred claims | Total | Total
| €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
Opening assets | — | — | — | — | — | — | — | — | —
Opening liabilities | 442,272 | 287 | 4,468 | 447,027 | 49,300 | 159 | 3,021 | 52,480 | 499,507
Net opening balance at 1 Jan | 442,272 | 287 | 4,468 | 447,027 | 49,300 | 159 | 3,021 | 52,480 | 499,507
Changes in profit or loss |  |  |  |  |  |  |  |  |
Insurance revenue |  |  |  |  |  |  |  |  |
Contract under fair value approach | (4,402) | — | — | (4,402) | (10,678) | — | — | (10,678) | (15,080)
Other contracts | (711) | — | — | (711) | (2,498) | — | — | (2,498) | (3,209)
Total insurance revenue | (5,113) | — | — | (5,113) | (13,176) | — | — | (13,176) | (18,289)
Insurance service expenses |  |  |  |  |  |  |  |  |
Incurred claims and other insurance service expenses | — | (15) | 2,924 | 2,909 | — | (76) | 3,082 | 3,006 | 5,915
Amortisation of insurance acquisition cash flows | 52 | — | — | 52 | 316 | — | — | 316 | 368
Losses and reversal of losses on onerous contracts | — | 1,284 | — | 1,284 | — | 221 | — | 221 | 1,505
Total insurance service expenses | 52 | 1,269 | 2,924 | 4,245 | 316 | 145 | 3,082 | 3,543 | 7,788
Investment components | (60,984) | — | 60,984 | — | (228) | — | 228 | — | —
Insurance service result before reinsurance contracts | (66,045) | 1,269 | 63,908 | (868) | (13,088) | 145 | 3,310 | (9,633) | (10,501)
Net finance expenses from insurance contracts | 42,064 | — | — | 42,064 | 1,853 | — | — | 1,853 | 43,917
Total changes in profit or loss | (23,981) | 1,269 | 63,908 | 41,196 | (11,235) | 145 | 3,310 | (7,780) | 33,416
Cash flows |  |  |  |  |  |  |  |  |
Premiums received | 41,569 | — | — | 41,569 | 14,447 | — | — | 14,447 | 56,016
Claims and other insurance service expenses paid, including investment components | (312) | — | (64,143) | (64,455) | — | — | (2,852) | (2,852) | (67,307)
Insurance acquisition cash flows | (443) | — | — | (443) | (1,826) | — | — | (1,826) | (2,269)
Transfer | 27 | (27) | — | — | 9 | (9) | — | — | —
Total cash flows | 40,841 | (27) | (64,143) | (23,329) | 12,630 | (9) | (2,852) | 9,769 | (13,560)
Net closing balance at 31 Dec | 459,132 | 1,529 | 4,233 | 464,894 | 50,695 | 295 | 3,479 | 54,469 | 519,363
Closing assets | — | — | — | — | — | — | — | — | —
Closing liabilities | 459,132 | 1,529 | 4,233 | 464,894 | 50,695 | 295 | 3,479 | 54,469 | 519,363
Net closing balance 31 Dec | 459,132 | 1,529 | 4,233 | 464,894 | 50,695 | 295 | 3,479 | 54,469 | 519,363

1 Other contracts are those contracts measured by applying IFRS 17 from inception of the contracts. This includes contracts measured under the full
retrospective approach at transition and contracts incepted after transition.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 145

Movements in carrying amounts of insurance contracts liabilities - Analysis by remaining coverage and incurred claims (continued)
| 2022
| Life direct participating and investment DPF contracts | Life other contracts 1 |
| Liabilities for: |  | Liabilities for: |  |
| Excluding loss component | Loss component | Incurred claims | Total | Excluding loss component | Loss component | Incurred claims | Total | Total
| €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
Opening assets | — | — | — | — | — | — | — | — | —
Opening liabilities | 521,333 | 7 | 1,530 | 522,870 | 57,009 | 46 | 2,448 | 59,503 | 582,373
Net opening balance at 1 Jan | 521,333 | 7 | 1,530 | 522,870 | 57,009 | 46 | 2,448 | 59,503 | 582,373
Changes in profit or loss |  |  |  |  |  |  |  |  |
Insurance revenue |  |  |  |  |  |  |  |  |
Contract under fair value approach | (3,894) | — | — | (3,894) | (9,552) | — | — | (9,552) | (13,446)
Other contracts | (484) | — | — | (484) | (1,635) | — | — | (1,635) | (2,119)
Total insurance revenue | (4,378) | — | — | (4,378) | (11,187) | — | — | (11,187) | (15,565)
Insurance service expenses |  |  |  |  |  |  |  |  |
Incurred claims and other insurance service expenses | — | (3) | 2,696 | 2,693 | — | (39) | 2,107 | 2,068 | 4,761
Amortisation of insurance acquisition cash flows | 15 | — | — | 15 | 105 | — | — | 105 | 120
Losses and reversal of losses on onerous contracts | — | 440 | — | 440 | — | 154 | — | 154 | 594
Total insurance service expenses | 15 | 437 | 2,696 | 3,148 | 105 | 115 | 2,107 | 2,327 | 5,475
Investment components | (53,680) | — | 53,680 | — | (211) | — | 211 | — | —
Insurance service result before reinsurance contracts | (58,043) | 437 | 56,376 | (1,230) | (11,293) | 115 | 2,318 | (8,860) | (10,090)
Net finance expenses from insurance contracts | (62,696) | — | — | (62,696) | (9,150) | — | — | (9,150) | (71,846)
Total changes in profit or loss | (120,739) | 437 | 56,376 | (63,926) | (20,443) | 115 | 2,318 | (18,010) | (81,936)
Cash flows |  |  |  |  |  |  |  |  |
Premiums received | 42,223 | — | — | 42,223 | 14,506 | — | — | 14,506 | 56,729
Claims and other insurance service expenses paid, including investment components | (332) | — | (53,438) | (53,770) | — | — | (1,745) | (1,745) | (55,515)
Insurance acquisition cash flows | (370) | — | — | (370) | (1,774) | — | — | (1,774) | (2,144)
Transfer | 157 | (157) | — | — | 2 | (2) | — | — | —
Total cash flows | 41,678 | (157) | (53,438) | (11,917) | 12,734 | (2) | (1,745) | 10,987 | (930)
Net closing balance at 31 Dec | 442,272 | 287 | 4,468 | 447,027 | 49,300 | 159 | 3,021 | 52,480 | 499,507
Closing assets | — | — | — | — | — | — | — | — | —
Closing liabilities | 442,272 | 287 | 4,468 | 447,027 | 49,300 | 159 | 3,021 | 52,480 | 499,507
Net closing balance 31 Dec | 442,272 | 287 | 4,468 | 447,027 | 49,300 | 159 | 3,021 | 52,480 | 499,507

1 Other contracts are those contracts measured by applying IFRS 17 from inception of the contracts. This includes contracts measured under the full
retrospective approach at transition and contracts incepted after transition.
Notes on the financial statements

146 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Movements in carrying amounts of reinsurance contracts assets - Analysis by remaining coverage and incurred claims
Reinsurance contracts
| 2023 | 2022
| Excluding loss recovery component | Loss recovery component | Incurred claims component | Total | Excluding loss recovery component | Loss recovery component | Incurred claims component | Total
| €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
Opening assets | 417 | 7 | 2,535 | 2,959 | (2,742) | — | 2,805 | 63
Opening liabilities | — | — | — | — | — | — | — | —
Net opening balance at 1 Jan | 417 | 7 | 2,535 | 2,959 | (2,742) | — | 2,805 | 63
Changes in profit or loss |  |  |  |  |  |  |  |
Allocation of reinsurance premiums paid | (7,603) | — | — | (7,603) | (5,855) | — | — | (5,855)
Recoveries of incurred claims and other insurance service expenses | — | — | 2,143 | 2,143 | — | — | 1,030 | 1,030
Recoveries or reversals of recoveries of losses on onerous underlying contracts | (16) | 5 | — | (11) | 6 | 7 | — | 13
Net finance (expense)/income from reinsurance contracts | (377) | — | — | (377) | 4,650 | — | — | 4,650
Total changes in profit or loss | (7,996) | 5 | 2,143 | (5,848) | (1,199) | 7 | 1,030 | (162)
Cash flows |  |  |  |  |  |  |  |
Premiums paid | 7,357 | — | — | 7,357 | 4,358 | — | — | 4,358
Claims and other recoverables received | — | — | (1,911) | (1,911) | — | — | (1,300) | (1,300)
Total cash flows | 7,357 | — | (1,911) | 5,446 | 4,358 | — | (1,300) | 3,058
Net closing balance at 31 Dec | (222) | 12 | 2,767 | 2,557 | 417 | 7 | 2,535 | 2,959
Closing assets | (222) | 12 | 2,767 | 2,557 | 417 | 7 | 2,535 | 2,959
Closing liabilities | — | — | — | — | — | — | — | —
Net closing balance at 31 Dec | (222) | 12 | 2,767 | 2,557 | 417 | 7 | 2,535 | 2,959

Movements in carrying amounts of insurance contracts liabilities - Analysis by measurement component
| 2023
| Life direct participating and investment DPF contracts
|  |  |  | Contractual service margin |
| Estimates of present value of future cashflows (excluding RA) | Risk adjustment for non-financial risk | Estimates of present value of future cashflows (including RA) | Contracts under fair value approach | Other contracts 1 | Total
| €000 | €000 | €000 | €000 | €000 | €000
Opening assets | — | — | — | — | — | —
Opening liabilities | 436,224 | 3,086 | 439,310 | 4,286 | 3,431 | 447,027
Net opening balance at 1 Jan | 436,224 | 3,086 | 439,310 | 4,286 | 3,431 | 447,027
Changes in profit or loss |  |  |  |  |  |
Changes that relate to current services |  |  |  |  |  |
CSM recognised for services provided | — | — | — | (868) | (335) | (1,203)
Change in risk adjustment for non-financial risk for risk expired | — | (249) | (249) | — | — | (249)
Experience adjustments | (700) | — | (700) | — | — | (700)
Changes that relate to future services |  |  |  |  |  |
Contracts initially recognised in the year | (916) | 140 | (776) | — | 809 | 33
Changes in estimates that adjust the CSM | (2,547) | 466 | (2,081) | 2,052 | 29 | —
Changes in estimates that result in losses and reversal of losses on onerous contracts | 1,051 | 200 | 1,251 | — | — | 1,251
Insurance service result before reinsurance contracts | (3,112) | 557 | (2,555) | 1,184 | 503 | (868)
Net finance expenses from insurance contracts | 42,064 | — | 42,064 | — | — | 42,064
Total changes in profit or loss | 38,952 | 557 | 39,509 | 1,184 | 503 | 41,196
Cash flows |  |  |  |  |  |
Premiums received | 41,569 | — | 41,569 | — | — | 41,569
Claims, other insurance service expenses paid (including investment components) and other cash flows | (64,455) | — | (64,455) | — | — | (64,455)
Insurance acquisition cash flows | (443) | — | (443) | — | — | (443)
Total cash flows | (23,329) | — | (23,329) | — | — | (23,329)
Net closing balance at 31 Dec | 451,847 | 3,643 | 455,490 | 5,470 | 3,934 | 464,894
Closing assets | — | — | — | — | — | —
Closing liabilities | 451,847 | 3,643 | 455,490 | 5,470 | 3,934 | 464,894
Net closing balance at 31 Dec | 451,847 | 3,643 | 455,490 | 5,470 | 3,934 | 464,894

1 Other contracts are those contracts measured by applying IFRS 17 from inception of the contracts. This includes contracts measured under the full
retrospective approach at transition and contracts incepted after transition.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 147

Movements in carrying amounts of insurance contracts liabilities - Analysis by measurement component (continued)
| 2023
| Life other contracts
|  |  |  | Contractual service margin |
| Estimates of present value of future cashflows (excluding RA) | Risk adjustment for non-financial risk | Estimates of present value of future cashflows (including RA) | Contract under fair value approach | Other contracts 1 | Total
| €000 | €000 | €000 | €000 | €000 | €000
Opening assets | — | — | — | — | — | —
Opening liabilities | (4,151) | 5,800 | 1,649 | 44,558 | 6,273 | 52,480
Net opening balance at 1 Jan | (4,151) | 5,800 | 1,649 | 44,558 | 6,273 | 52,480
Changes in profit or loss |  |  |  |  |  |
Changes that relate to current services |  |  |  |  |  |
CSM recognised for services provided | — | — | — | (5,314) | (993) | (6,307)
Change in risk adjustment for non-financial risk for risk expired | — | (201) | (201) | — | — | (201)
Experience adjustments | (3,346) | — | (3,346) | — | — | (3,346)
Changes that relate to future services |  |  |  |  |  |
Contracts initially recognised in the year | (1,975) | 179 | (1,796) | — | 1,821 | 25
Changes in estimates that adjust the CSM | (9,299) | 186 | (9,113) | 7,830 | 1,283 | —
Changes in estimates that result in losses and reversal of losses on onerous contracts | 175 | 21 | 196 | — | — | 196
Insurance service result before reinsurance contracts | (14,445) | 185 | (14,260) | 2,516 | 2,111 | (9,633)
Net finance expenses from insurance contracts | 1,508 | — | 1,508 | 312 | 33 | 1,853
Total changes in profit or loss | (12,937) | 185 | (12,752) | 2,828 | 2,144 | (7,780)
Cash flows |  |  |  |  |  |
Premiums received | 14,447 | — | 14,447 | — | — | 14,447
Claims, other insurance service expenses paid (including investment components) and other cash flows | (2,852) | — | (2,852) | — | — | (2,852)
Insurance acquisition cash flows | (1,826) | — | (1,826) | — | — | (1,826)
Total cash flows | 9,769 | — | 9,769 | — | — | 9,769
Net closing balance at 31 Dec | (7,319) | 5,985 | (1,334) | 47,386 | 8,417 | 54,469
Closing assets | — | — | — | — | — | —
Closing liabilities | (7,319) | 5,985 | (1,334) | 47,386 | 8,417 | 54,469
Net closing balance at 31 Dec | (7,319) | 5,985 | (1,334) | 47,386 | 8,417 | 54,469

1 Other contracts are those contracts measured by applying IFRS 17 from inception of the contracts. This includes contracts measured under the full
retrospective approach at transition and contracts incepted after transition.
Notes on the financial statements

148 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Movements in carrying amounts of insurance contracts liabilities - Analysis by measurement component (continued)
| 2022
| Life direct participating and investment DPF contracts
|  |  |  | Contractual service margin |
| Estimates of present value of future cashflows (excluding RA) | Risk adjustment for non-financial risk | Estimates of present value of future cashflows (including RA) | Contracts under fair value approach | Other contracts 1 | Total
| €000 | €000 | €000 | €000 | €000 | €000
Opening assets | — | — | — | — | — | —
Opening liabilities | 505,890 | 3,236 | 509,126 | 11,016 | 2,728 | 522,870
Net opening balance at 1 Jan | 505,890 | 3,236 | 509,126 | 11,016 | 2,728 | 522,870
Changes in profit or loss |  |  |  |  |  |
Changes that relate to current services |  |  |  |  |  |
CSM recognised for services provided | — | — | — | (747) | (283) | (1,030)
Change in risk adjustment for non-financial risk for risk expired | — | (218) | (218) | — | — | (218)
Experience adjustments | (422) | — | (422) | — | — | (422)
Changes that relate to future services |  |  |  |  |  |
Contracts initially recognised in the year | (1,427) | 176 | (1,251) | — | 1,301 | 50
Changes in estimates that adjust the CSM | 6,422 | (124) | 6,298 | (5,983) | (315) | —
Changes in estimates that result in losses and reversal of losses on onerous contracts | 374 | 16 | 390 | — | — | 390
Insurance service result before reinsurance contracts | 4,947 | (150) | 4,797 | (6,730) | 703 | (1,230)
Net finance expenses from insurance contracts | (62,696) | — | (62,696) | — | — | (62,696)
Total changes in profit or loss | (57,749) | (150) | (57,899) | (6,730) | 703 | (63,926)
Cash flows |  |  |  |  |  |
Premiums received | 42,223 | — | 42,223 | — | — | 42,223
Claims, other insurance service expenses paid (including investment components) and other cash flows | (53,770) | — | (53,770) | — | — | (53,770)
Insurance acquisition cash flows | (370) | — | (370) | — | — | (370)
Total cash flows | (11,917) | — | (11,917) | — | — | (11,917)
Net closing balance at 31 Dec | 436,224 | 3,086 | 439,310 | 4,286 | 3,431 | 447,027
Closing assets | — | — | — | — | — | —
Closing liabilities | 436,224 | 3,086 | 439,310 | 4,286 | 3,431 | 447,027
Net closing balance at 31 Dec | 436,224 | 3,086 | 439,310 | 4,286 | 3,431 | 447,027

1 Other contracts are those contracts measured by applying IFRS 17 from inception of the contracts. This includes contracts measured under the full
retrospective approach at transition and contracts incepted after transition.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 149

Movements in carrying amounts of insurance contracts - Analysis by measurement component (continued)
| 2022
| Life other contracts
|  |  |  | Contractual service margin |
| Estimates of present value of future cashflows (excluding RA) | Risk adjustment for non-financial risk | Estimates of present value of future cashflows (including RA) | Contract under fair value approach | Other contracts 1 | Total
| €000 | €000 | €000 | €000 | €000 | €000
Opening assets | — | — | — | — | — | —
Opening liabilities | (519) | 6,900 | 6,381 | 47,708 | 5,414 | 59,503
Net opening balance at 1 Jan | (519) | 6,900 | 6,381 | 47,708 | 5,414 | 59,503
Changes in profit or loss |  |  |  |  |  |
Changes that relate to current services |  |  |  |  |  |
CSM recognised for services provided | — | — | — | (5,125) | (743) | (5,868)
Change in risk adjustment for non-financial risk for risk expired | — | (252) | (252) | — | — | (252)
Experience adjustments | (2,894) | — | (2,894) | — | — | (2,894)
Changes that relate to future services |  |  |  |  |  |
Contracts initially recognised in the year | (2,400) | 210 | (2,190) | — | 2,210 | 20
Changes in estimates that adjust the CSM | (165) | (1,062) | (1,227) | 1,813 | (586) | —
Changes in estimates that result in losses and reversal of losses on onerous contracts | 130 | 4 | 134 | — | — | 134
Insurance service result before reinsurance contracts | (5,329) | (1,100) | (6,429) | (3,312) | 881 | (8,860)
Net finance expenses from insurance contracts | (9,290) | — | (9,290) | 162 | (22) | (9,150)
Total changes profit or loss | (14,619) | (1,100) | (15,719) | (3,150) | 859 | (18,010)
Cash flows |  |  |  |  |  |
Premiums received | 14,506 | — | 14,506 | — | — | 14,506
Claims, other insurance service expenses paid (including investment components) and other cash flows | (1,745) | — | (1,745) | — | — | (1,745)
Insurance acquisition cash flows | (1,774) | — | (1,774) | — | — | (1,774)
Total cash flows | 10,987 | — | 10,987 | — | — | 10,987
Net closing balance at 31 Dec | (4,151) | 5,800 | 1,649 | 44,558 | 6,273 | 52,480
Closing assets | — | — | — | — | — | —
Closing liabilities | (4,151) | 5,800 | 1,649 | 44,558 | 6,273 | 52,480
Net closing balance at 31 Dec | (4,151) | 5,800 | 1,649 | 44,558 | 6,273 | 52,480

1 Other contracts are those contracts measured by applying IFRS 17 from inception of the contracts. This includes contracts measured under the full
retrospective approach at transition and contracts incepted after transition.
Notes on the financial statements

150 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Movements in carrying amounts of reinsurance contracts assets - Analysis by measurement component
| 2023
| Estimates of present value of future cashflows (excluding RA) | Risk adjustment for non- financial risk |  | Contractual service margin | Total
| Estimates of present value of future cashflows (including RA) | Contracts under fair value approach | Other contracts 1
| €000 | €000 | €000 | €000 | €000 | €000
Opening assets | (17,844) | 1,296 | (16,548) | 19,532 | (25) | 2,959
Opening liabilities | — | — | — | — | — | —
Net opening balance at 1 Jan | (17,844) | 1,296 | (16,548) | 19,532 | (25) | 2,959
Changes in profit or loss |  |  |  |  |  |
Changes that relate to current services |  |  |  |  |  |
CSM recognised for services provided | — | — | — | (3,252) | (273) | (3,525)
Change in risk adjustment for non- | — | (34) | (34) | — | — | (34)
Experience adjustments | (1,901) | — | (1,901) | — | — | (1,901)
Changes that relate to future services |  |  |  |  |  |
Contracts initially recognised in the year | (241) | 29 | (212) | — | 212 | —
Changes in recoveries of losses on onerous underlying contracts that adjust the CSM | — | — | — | — | 2 | 2
Changes in estimates that adjust the CSM | (13,086) | 323 | (12,763) | 11,764 | 999 | —
Changes in estimates that do not adjust the CSM | (16) | 3 | (13) | — | — | (13)
Net expenses from reinsurance contracts | (15,244) | 321 | (14,923) | 8,512 | 940 | (5,471)
Net finance expenses from reinsurance contracts | (535) | — | (535) | 150 | 8 | (377)
Total changes in profit or loss | (15,779) | 321 | (15,458) | 8,662 | 948 | (5,848)
Cash flows |  |  |  |  |  |
Premiums paid | 7,357 | — | 7,357 | — | — | 7,357
Claims and other recoverables received | (1,911) | — | (1,911) | — | — | (1,911)
Total cash flows | 5,446 | — | 5,446 | — | — | 5,446
Net closing balance at 31 Dec | (28,177) | 1,617 | (26,560) | 28,194 | 923 | 2,557
Closing assets | (28,177) | 1,617 | (26,560) | 28,194 | 923 | 2,557
Closing liabilities | — | — | — | — | — | —
Net closing balance at 31 Dec | (28,177) | 1,617 | (26,560) | 28,194 | 923 | 2,557

1 Other contracts are those contracts measured by applying IFRS 17 from inception of the contracts. This includes contracts measured under the full
retrospective approach at transition and contracts incepted after transition.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 151

Movements in carrying amounts of reinsurance contracts - Analysis by measurement component (continued)
| 2022
| Estimates of present value of future cash flows (excluding RA) |  |  | Contractual service margin | Total
| Risk adjustment for non-financial risk | Estimates of present value of future cash flows (including RA) | Contracts under fair value approach | Other contracts 1
| €000 | €000 | €000 | €000 | €000 | €000
Opening assets | (20,644) | 1,771 | (18,873) | 18,936 | — | 63
Opening liabilities | — | — | — | — | — | —
Net opening balance at 1 Jan | (20,644) | 1,771 | (18,873) | 18,936 | — | 63
Changes in profit or loss |  |  |  |  |  |
Changes that relate to current services |  |  |  |  |  |
CSM recognised for services provided | — | — | — | (2,550) | (169) | (2,719)
Change in risk adjustment for non-financial risk for risk expired | — | (55) | (55) | — | — | (55)
Experience adjustments | (2,073) | — | (2,073) | — | — | (2,073)
Changes that relate to future services |  |  |  |  |  |
Contracts initially recognised in the year | (248) | 37 | (211) | — | 233 | 22
Changes in recoveries of losses on onerous underlying contracts that adjust the CSM | — | — | — | — | 5 | 5
Changes in estimates that adjust the CSM | (2,527) | (457) | (2,984) | 3,078 | (94) | —
Changes in estimates that do not adjust the CSM | 8 | — | 8 | — | — | 8
Net expenses from reinsurance contracts | (4,840) | (475) | (5,315) | 528 | (25) | (4,812)
Net finance income from reinsurance contracts | 4,582 | — | 4,582 | 68 | — | 4,650
Total changes in profit or loss | (258) | (475) | (733) | 596 | (25) | (162)
Cash flows |  |  |  |  |  |
Premiums paid | 4,358 | — | 4,358 | — | — | 4,358
Claims and other recoverables received | (1,300) | — | (1,300) | — | — | (1,300)
Total cash flows | 3,058 | — | 3,058 | — | — | 3,058
Net closing balance at 31 Dec | (17,844) | 1,296 | (16,548) | 19,532 | (25) | 2,959
Closing assets | (17,844) | 1,296 | (16,548) | 19,532 | (25) | 2,959
Closing liabilities | — | — | — | — | — | —
Net closing balance at 31 Dec | (17,844) | 1,296 | (16,548) | 19,532 | (25) | 2,959

1 Other contracts are those contracts measured by applying IFRS 17 from inception of the contracts. This includes contracts measured under the full
retrospective approach at transition and contracts incepted after transition.

Effect of insurance contracts initially recognised in the year
| 2023 | 2022
| Profitable contracts issued | Onerous contracts issued | Total | Profitable contracts issued | Onerous contracts issued | Total
| €000 | €000 | €000 | €000 | €000 | €000
Life direct participating and investment DPF contracts |  |  |  |  |  |
Estimates of present value of cash outflows | 18,549 | 1,484 | 20,033 | 27,004 | 2,462 | 29,466
Estimates of present value of cash inflows | (19,489) | (1,460) | (20,949) | (28,478) | (2,415) | (30,893)
Risk adjustment for non-financial risk | 131 | 9 | 140 | 173 | 3 | 176
Contractual service margin | 809 | — | 809 | 1,301 | — | 1,301
Losses recognised on initial recognition | — | 33 | 33 | — | 50 | 50
Life other contracts |  |  |  |  |  |
Estimates of present value of cash outflows | 4,461 | 191 | 4,652 | 4,830 | 249 | 5,079
Estimates of present value of cash inflows | (6,454) | (173) | (6,627) | (7,238) | (241) | (7,479)
Risk adjustment for non-financial risk | 172 | 7 | 179 | 198 | 12 | 210
Contractual service margin | 1,821 | — | 1,821 | 2,210 | — | 2,210
Losses recognised on initial recognition | — | 25 | 25 | — | 20 | 20

Effect of reinsurance contacts initially recognised in the year
| 2023 | 2022
| Profitable contracts issued | Profitable contracts issued
| €000 | €000
Life other contracts |  |
Estimates of present value of cash outflows | (1,433) | (1,438)
Estimates of present value of cash inflows | 1,192 | 1,190
Risk adjustment for non-financial risk | 29 | 37
Contractual service margin | 212 | 233

Notes on the financial statements

152 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Present value of expected future cash flows of insurance contract liabilities and contractual service margin and reinsurance contracts
| less than 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | 5-10 years | 10-20 years | Over 20 years | Total
| €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
Insurance liability future cash flows |  |  |  |  |  |  |  |  |
Life direct participating and investment DPF contracts | 11,219 | 3,103 | 4,141 | 27,874 | 22,425 | 86,282 | 150,439 | 146,364 | 451,847
Life other contracts | (3,552) | (6,562) | (5,975) | (5,536) | (5,006) | (14,951) | (547) | 34,810 | (7,319)
Reinsurance contracts | 170 | 1,402 | 1,448 | 1,397 | 1,376 | 6,612 | 11,132 | 4,640 | 28,177
Net insurance liability future cash flows at 31 Dec 2023 | 7,837 | (2,057) | (386) | 23,735 | 18,795 | 77,943 | 161,024 | 185,814 | 472,705
Remaining contractual service margin |  |  |  |  |  |  |  |  |
Life direct participating and investment DPF contracts | 1,255 | 1,120 | 1,014 | 868 | 725 | 2,330 | 1,708 | 384 | 9,404
Life other contracts | 5,876 | 5,311 | 4,801 | 4,334 | 3,918 | 14,481 | 13,008 | 4,074 | 55,803
Reinsurance contracts | (3,256) | (2,915) | (2,615) | (2,345) | (2,104) | (7,639) | (6,594) | (1,649) | (29,117)
Remaining contractual service margin at 31 Dec 2023 | 3,875 | 3,516 | 3,200 | 2,857 | 2,539 | 9,172 | 8,122 | 2,809 | 36,090
Insurance liability future cash flows |  |  |  |  |  |  |  |  |
Life direct participating and investment DPF contracts | 539 | 6,682 | 1,317 | 2,963 | 27,893 | 97,850 | 159,165 | 139,815 | 436,224
Life other contracts | (4,095) | (6,076) | (5,325) | (4,804) | (4,499) | (14,122) | (218) | 34,988 | (4,151)
Reinsurance contracts | 827 | 780 | 811 | 817 | 786 | 2,401 | 7,159 | 4,263 | 17,844
Net insurance liability future cash flows at 31 Dec 2022 | (2,729) | 1,386 | (3,197) | (1,024) | 24,180 | 86,129 | 166,106 | 179,066 | 449,917
Remaining contractual service margin |  |  |  |  |  |  |  |  |
Life direct participating and investment DPF contracts | 866 | 779 | 707 | 647 | 585 | 2,094 | 1,654 | 385 | 7,717
Life other contracts | 5,352 | 4,845 | 4,381 | 3,960 | 3,573 | 13,248 | 12,077 | 3,395 | 50,831
Reinsurance contracts | (2,279) | (2,048) | (1,819) | (1,619) | (1,440) | (5,139) | (4,216) | (947) | (19,507)
Remaining contractual service margin at 31 Dec 2022 | 3,939 | 3,576 | 3,269 | 2,988 | 2,718 | 10,203 | 9,515 | 2,833 | 39,041

11 | Net income/(expense) from assets and liabilities of insurance businesses, measured at fair value through profit or loss

| Group
| 2023 | 2022 1
| €000 | €000
Financial assets held to meet liabilities under insurance and investment contracts | 59,213 | (91,835)
Liabilities to customers under investment contracts | (11,145) | 17,091
Net income/(expense) from assets and liabilities of insurance businesses, measured at fair value through profit or loss | 48,068 | (74,744)

1 From January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative information
in respect of the financial year ended 31 December 2022 has been restated accordingly.

12 | Net trading income

| Group/Bank
| 2023 | 2022
| €000 | €000
Net income from foreign exchange activities | 7,357 | 6,854
Net income from trading activities | 266 | 835
| 7,623 | 7,689

13 | Dividend income

Dividend income received by the bank in 2023 amounted to €769,000 (2022: €1,308,000) representing dividend received from a subsidiary
company.

14 | Other operating (expense)/income

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Operating income |  |  |  |
Gains arising on disposal of re-possessed properties | 45 | 749 | 45 | 749
Impairment of re-possessed property | (450) | — | (450) | —
Gains arising on disposal of own properties held as Non-current assets held for sale | — | 440 | — | 440
Loss arising on disposal of equipment and intangible assets | (140) | — | (140) | —
Other income | 503 | (7) | 509 | 325
| (42) | 1,182 | (36) | 1,514

Other income includes inter-company income amounting to €496,000 (2022: €312,000) for the local bank and group, and third party income
amounting to €13,000 (2022: €13,000) for the local bank and €548,000 (2022: €782,000) for the local group.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 153

15 | Change in expected credit losses and other credit impairment charges

| Group/Bank
| 2023 | 2022
| €000 | €000
Change in expected credit losses: |  |
– loans and advances to customers including accrued interest | (3,675) | (15,478)
– loans and advances to banks | (1) | (1)
– balances with Central Bank of Malta | 8 | 5
– debt instruments and Treasury Bills measured at amortised cost | 10 | 19
– loan commitments and financial guarantees | (4) | 56
– other financial assets | (4) | 5
– debt instruments and Treasury Bills measured at fair value through other comprehensive income | (15) | (12)
Other credit impairment charges: |  |
– bad debts written off | 567 | 15,204
– bad debts recovered | (1,466) | (9,359)
| (4,580) | (9,561)

16 | Employee compensation and benefits

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Wages, salaries and allowances | 35,747 | 34,373 | 34,717 | 33,287
Social security costs | 2,224 | 2,071 | 2,084 | 2,004
Termination benefits | 822 | 1,558 | 822 | 1,558
Defined contribution benefits | 483 | 499 | 449 | 466
Post employment and other long-term employee benefits | 2,913 | 275 | 2,913 | 275
Share-based payments | 418 | 176 | 418 | 194
| 42,607 | 38,952 | 41,403 | 37,784
Average number of employees: |  |  |  |
– executive and senior managerial | 262 | 253 | 240 | 233
– other managerial, supervisory and clerical | 674 | 672 | 641 | 634
– others | 4 | 6 | 4 | 6
| 940 | 931 | 885 | 873

Employee compensation and benefits that are directly attributable to the acquisition or fulfilment of the insurance contracts, and which are
accordingly incorporated in the CSM and recognised in the insurance service result, are disclosed within Note 17.
(a)Termination benefits
In 2021, the bank announced a 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 €1,558,000 was recognised in respect of a
Voluntary Redundancy Scheme issued by the bank during 2022, reflecting the estimated payments to the affected individual employees which
were approximately 11 applicants, representing 11 full time equivalent employees, for the local group and bank. This provision was raised in
respect of the planned transfer of a number of employees and activities to a local service provider. This provision was fully utilised by
31 December 2023, with the exception of an amount of €128,000 attributable to one application for the scheme that was withdrawn during
2023.
During the financial year ended 31 December 2023, the bank recognised another provision to further align its structure to the HSBC Group’s
operating model. In this respect, a provision amounting to €950,000, attributable to the local group and bank, was recognised during 2023.
(b)Post employment and other long-term employee benefits
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 39). 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. In 2022, 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 €305,000, which is mainly the result of the planned transfer of a number of employees to a local service provider. In 2023, another release
amounting to €9,000 was recognised in profit or loss to reflect the actual number of employees that benefited from the retirement bonus as
stipulated within the Collective Agreement during the financial year (refer to Note 39). Current service costs attributable to these obligations,
amounting to €975,000 (2022: €729,000), and actuarial losses attributable to changes in financial assumptions, demographic assumptions and
experience adjustments of €1,947,000 (2022: a gain of €148,000) relating to long-term employee benefits, were recognised in the income
statement during the financial year ended 31 December 2023.
(c)Defined contribution benefits
The local group also contributes towards an employee pension plan with no commitment beyond the payment of fixed contributions.
Notes on the financial statements

154 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

(d)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 grant 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 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.
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 t o €1,160,000 (2022: €631,000) in relation to
the annual statutory audit of the financial statements, of which €492,000 (2022: €463,000) is attributable to the bank. The annual statutory audit
fee for the local group includes a one-off fee of €400,000 in relation to the implementation of IFRS 17.
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 €70,000 (2022: €66,000). Other fees, exclusive of VAT, charged by the appointed independent auditors
to the bank comprise other assurance services in respect of Investor Services Rules and the Calculation of Contributions to the Single
Resolution Fund, amounting to €28,000 (2022:€28,000).
General and administration expenses are analysed as follows:

| Group | Bank
| 2023 | 2022 1 | 2023 | 2022
| €000 | €000 | €000 | €000
Premises and equipment costs | 3,191 | 4,181 | 3,184 | 4,175
IT support and telecommunication costs | 9,537 | 8,857 | 9,393 | 8,593
Insurance, security and maintenance costs | 2,368 | 2,159 | 2,368 | 2,159
Investment management and administrator fees | 625 | 277 | — | —
Actuarial services | 597 | 993 | — | —
Service contracted out costs | 14,069 | 12,919 | 13,046 | 12,072
Movement in litigation provision | 478 | 903 | 598 | 783
Regulatory fees | 5,989 | 5,822 | 5,949 | 5,777
Professional fees | 2,370 | 1,612 | 1,417 | 1,280
Other administrative expenses | 12,153 | 14,941 | 12,183 | 14,251
| 51,377 | 52,664 | 48,138 | 49,090

1 From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative
information in respect of the financial year ended 31 December 2022 has been restated accordingly.
Under IFRS 17 reported operating expenses will be lower as directly attributable costs will be incorporated in the CSM and recognised in the
insurance service result over the duration of the associated insurance contracts. Profit before tax includes a reduction to reported operating
expenses of €3.6m as directly attributable costs are incorporated in the CSM and insurance service result. Below are the details of the
attributable and non attributable expenses;

| 2023 | 2022 1
| Expenses attributed to insurance acquisition cashflow | Other directly attributable expenses | Other operating expenses | Expenses attributed to insurance acquisition cashflow | Other directly attributable expenses | Other operating expenses
| €000 | €000 | €000 | €000 | €000 | €000
Employees compensation and benefits | 761 | 560 | 42,607 | 664 | 489 | 38,952
General and admin expenses | 978 | 1,144 | 51,377 | 885 | 1,080 | 52,664
Depreciation and amortisation | 88 | 65 | 8,412 | 39 | 28 | 8,154
| 1,827 | 1,769 | 102,396 | 1,588 | 1,597 | 99,770

1 From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative
information in respect of the financial year ended 31 December 2022 has been restated accordingly.
Other administrative expenses mainly comprise of expense items which are incurred in the course of the operations of the local group and bank.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 155

18 | Tax expense

The local group’s and the bank’s tax expense recognised in profit or loss is analysed below:

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Current tax: | 46,977 | 13,328 | 44,482 | 12,668
– for this year | 46,977 | 13,340 | 44,482 | 12,680
– adjustments in respect of prior years | — | (12) | — | (12)
Deferred tax: | 121 | 6,078 | 353 | 5,385
– origination and reversal of temporary differences | 121 | 6,078 | 353 | 5,385
| 47,098 | 19,406 | 44,835 | 18,053

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
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Profit before tax | 133,854 | 55,588 | 128,134 | 52,560
Tax at the applicable rate of 35% | 46,849 | 19,456 | 44,847 | 18,396
Tax effect of: |  |  |  |
– non-taxable income | — | (7) | — | —
– income taxed at different rates | (31) | (434) | (31) | (434)
– non-deductible expenses | 18 | 62 | 18 | 62
– disallowed expense arising from depreciation of property, plant and equipment | 126 | 117 | 126 | 117
– current tax adjustments in respect of prior years | — | (12) | — | (12)
– tax credit on pension contribution | (113) | (111) | (113) | (111)
– loss on disposal of property, plant and equipment | 44 | — | 44 | —
– others | 205 | 335 | (56) | 35
Tax expense | 47,098 | 19,406 | 44,835 | 18,053

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
| 2023 | 2022
| 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 | 13,386 | (4,685) | 8,701 | (35,655) | 12,479 | (23,176)
Fair valuation of properties: |  |  |  |  |  |
– net changes in fair value | 1,826 | (183) | 1,643 | 185 | (19) | 166
Remeasurement of defined benefit obligation: |  |  |  |  |  |
– net remeasurement | (22) | 8 | (14) | 1,374 | (481) | 893
| 15,190 | (4,860) | 10,330 | (34,096) | 11,979 | (22,117)

Notes on the financial statements

156 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

19 | Dividends

| Bank
| 2023 | 2022 | 2023 | 2022
| EUR per share | EUR per share | €000 | €000
Gross of income tax |  |  |  |
– prior year’s final dividend | 0.06 | 0.03 | 20,214 | 12,323
– current year’s interim dividend | 0.06 | — | 21,617 | —
| 0.12 | 0.03 | 41,831 | 12,323
Net of income tax |  |  |  |
– prior year’s final dividend | 0.04 | 0.02 | 13,139 | 8,010
– current year’s interim dividend | 0.04 | — | 14,051 | —
| 0.08 | 0.02 | 27,190 | 8,010

The bank is proposing a final net dividend of €21,078,000 in respect of the financial year ended 31 December 2023. The final dividend will be
paid on 25 April 2024 to shareholders who are on the bank’s register of shareholders on 19 March 2024 subject to approval by the Annual
General Meeting scheduled for 18 April 2024.

| Bank
| 2023 | 2022
| €000 | €000
Proposed dividend |  |
Profit for the year | 83,299 | 34,507
Proposed dividend | 35,129 | 13,139
Less: interim dividend paid | (14,051) | —
Available for distribution | 21,078 | 13,139
Proposed final dividend | 21,078 | 13,139
Issued and fully paid up shares (Note 42) | 360,306,099 | 360,306,099
| EUR per share | EUR per share
Proposed final dividend |  |
– gross of income tax per share | 0.09 | 0.06
– net of income tax per share | 0.06 | 0.04

20 | 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 €86,756,000 (2022:
€36,182,000), while the weighted average number of ordinary shares in issue was 360,306,099 (2022: 360,306,099). The basic earnings per
share of the local group amounted to €0.24 (2022: €0.10). 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.

21 | Balances with Central Bank of Malta, Treasury Bills and cash

| Group/Bank
| 2023 | 2022
| €000 | €000
Balances with Central Bank of Malta | 1,257,477 | 1,269,354
Treasury Bills |  |
– measured at fair value through other comprehensive income | 385,580 | 242,292
– measured at amortised cost | — | 42,202
Cash | 33,582 | 29,500
| 1,676,639 | 1,583,348

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 €57,727,000 (2022: €59,367,000 ).
Balances with Central Bank of Malta and Treasury Bills in the table above are shown net of credit loss allowances amounting to €21,000 (2022:
€13,000) and €11,000 (2022: €5,000) respectively.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 157

22 | Financial assets mandatorily measured at fair value through profit or loss

| Group
| 2023 | 2022
| €000 | €000
Debt securities and other fixed income instruments | 232,364 | 231,093
Equity and other non-fixed income instruments | 460,660 | 429,353
| 693,024 | 660,446

Debt securities and other fixed income instruments
| Group
| 2023 | 2022
| €000 | €000
Issued by public bodies: |  |
– local government | 73,927 | 74,083
– foreign governments | 54,739 | 46,647
Issued by other bodies: |  |
– local banks | 5,088 | 6,122
– foreign banks | 9,806 | 18,834
– other local issuers | 14,746 | 9,578
– other foreign issuers | 74,058 | 75,829
| 232,364 | 231,093
Listing status: |  |
– listed on the Malta Stock Exchange | 93,762 | 89,783
– listed on other recognised exchanges | 138,602 | 138,038
– unlisted | — | 3,272
| 232,364 | 231,093
At 1 Jan | 231,093 | 270,806
Acquisitions | 92,122 | 42,324
Disposals/redemptions | (101,607) | (48,423)
Changes in fair value | 10,756 | (33,614)
At 31 Dec | 232,364 | 231,093

Equity and other non-fixed income instruments
| Group
| 2023 | 2022
| €000 | €000
Issued by other bodies: |  |
– local banks | 1,966 | —
– foreign banks | 1,663 | 3,259
– other local issuers | 20,728 | 96,849
– other foreign issuers | 436,303 | 329,245
| 460,660 | 429,353
Listing status: |  |
– listed on the Malta Stock Exchange | 9,081 | 14,306
– listed on other recognised exchanges | 42,082 | 40,232
– local unlisted | 94,367 | 82,543
– foreign unlisted | 315,130 | 292,272
| 460,660 | 429,353
At 1 Jan | 429,353 | 497,002
Acquisitions | 27,061 | 23,102
Disposals | (35,582) | (27,857)
Changes in fair value | 39,828 | (62,894)
At 31 Dec | 460,660 | 429,353

Notes on the financial statements

158 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

23 | Derivatives

The local group transacts derivatives primarily to create risk management solutions for clients, referred to as ‘trading derivatives’, and derivatives
to manage and hedge own risks, referred to as ‘hedge accounting derivatives’.
Trading derivatives
Trading derivative transactions relate mainly to sales activities. These activities include the structuring and marketing of derivative products to
customers to enable them to take, transfer, modify or reduce current or expected risks.
All of the positions held for trading purposes 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. Therefore, revenue
is generated based on volume and spread.
Hedge accounting derivatives
The local group uses derivatives (principally interest rate swaps) for hedging purposes in the management of its own asset portfolio. This
enables the local group to optimise the overall cost of accessing debt capital markets, and to mitigate the market risk which would otherwise
arise from structural imbalances in the maturity and other profiles of its assets and liabilities.
The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and the type of hedge transactions.
Derivatives may qualify as hedges for accounting purposes if they are fair value hedges, or cash flow hedges, or hedges in net investment of
foreign operations. During the financial year ended 31 December 2022, the local group entered into fair value hedges, which consisted of
interest rate swaps that where used to protect against changes in the fair value of fixed-rate-long-term debt instruments due to the movements
in market interest rates. The local group did not enter into new fair value hedges during the financial year ended 31 December 2023. For
qualifying fair value hedges, all changes in the fair value of the derivatives (the ‘hedging instrument’) and in the fair value of the item in relation
to the risk being hedged (the ‘hedged item’) are recognised in the income statement.
Hedge effectiveness is determined at inception of the hedge relationship, and through periodic prospective effectiveness assessments, to
ensure that an economic relationship exists between the hedged item and the hedging instrument.
The local group entered into interest rate swaps that had similar critical terms as the hedged item, such as reference rate, reset dates, payment
dates, maturities and notional amount. The local group matched the nominal amount of the hedged item with the notional amount of the
interest rate swaps. As all critical terms matched since the inception of the fair value hedge, the hedging instruments share the same risk
exposures as the hedged items and, as a result, an economic relationship is deemed to exist.
Hedge effectiveness for interest rate swaps was also assessed by reference to qualitative tests, including both retrospective and prospective
effectiveness tests. However, to the extent hedging instruments are exposed to different risks than hedged items, this could result in hedge
ineffectiveness. This may occur due to the credit value/debit value adjustment on the interest rate swaps which is not matched by the hedged
item.
The hedge ratio in respect of the hedge accounting derivatives for the financial years ending 31 December 2023 and 31 December 2022 was
1:1. The weighted average swap rate in respect of the hedge accounting derivatives for the year was 2.08% per annum (2022: -0.55%). The
contractual maturity date of the hedge derivatives is reflected in Note 4(c)(iv).

Derivatives
| Group/Bank
| Notional contract amount | Fair value - Assets | Fair value - Liabilities
| Trading | Hedging | Trading | Hedging | Total | Trading | Hedging | Total
| €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000
Foreign exchange derivatives |  |  |  |  |  |  |  |
Foreign exchange | 323,493 | — | 3,556 | — | 3,556 | 3,226 | — | 3,226
Interest rate derivatives |  |  |  |  |  |  |  |
Interest rate swaps | 96,554 | 271,000 | 2,538 | 7,483 | 10,021 | 2,522 | — | 2,522
At 31 Dec 2023 | 420,047 | 271,000 | 6,094 | 7,483 | 13,577 | 5,748 | — | 5,748
Foreign exchange derivatives |  |  |  |  |  |  |  |
Foreign exchange | 318,988 | — | 6,273 | — | 6,273 | 5,879 | — | 5,879
Interest rate derivatives |  |  |  |  |  |  |  |
Interest rate swaps | 117,173 | 271,000 | 4,382 | 15,090 | 19,472 | 4,373 | — | 4,373
At 31 Dec 2022 | 436,161 | 271,000 | 10,655 | 15,090 | 25,745 | 10,252 | — | 10,252

The notional contract amounts of derivatives held for trading purposes and derivatives designated in hedge accounting relationships indicate the
nominal value of transactions outstanding at the balance sheet date. They do not represent amounts at risk.
Foreign exchange derivatives 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.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 159

Fair value hedges
The local group enters into fixed-for-floating interest rate swaps to hedge the exposure to change in fair value caused by the movement in
interest rates on certain fixed-rate debt securities that are measured at fair value through other comprehensive income (‘FVOCI’). Therefore, the
hedges provide protection for changes in fair value of the relevant securities.

Hedging instrument and hedged item by hedged risk
| Group/Bank
| Notional 1 | Accumulated fair value movements since hedge inception | Balance sheet presentation | Change in fair value for the year 2,3 | Hedge ineffectiveness recognised in profit and loss | Profit or loss presentation
| €000 | €000 |  | €000 | €000 |
Hedging instrument | 271,000 | 6,560 | Derivatives | (8,613) | (34) | Net loss representing ineffective portion of fair value hedges
Hedged item | N/A | (6,735) | Financial investments | 8,579
At 31 Dec 2023 | 271,000 | (175) |  | (34) | (34) |
Hedging instrument | 271,000 | 15,173 | Derivatives | 15,173 | (141) | Net loss representing ineffective portion of fair value hedges
Hedged item | N/A | (15,314) | Financial investments | (15,314)
At 31 Dec 2022 | 271,000 | (141) |  | (141) | (141) |

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions
outstanding at the balance sheet date; they do not represent amounts at risk.
2 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component in respect of hedged
item.
3 Used in effectiveness testing; comprising the full fair value change of hedging instrument not excluding any component.
The carrying amount of the hedged item as at the financial year ended 31 December 2023 amounted to €252,904,000 (2022: €242,584,000).

24 | Loans and advances to banks

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Repayable on call and at short notice | 522,646 | 355,780 | 518,249 | 349,490
Term loans and advances | 197,937 | 376,727 | 197,891 | 376,727
| 720,583 | 732,507 | 716,140 | 726,217

Loans and advances to banks in the table above are shown net of credit loss allowances which amounted to nil (2022: €1,000).

25 | Loans and advances to customers

| Group/Bank
| 2023 | 2022
| €000 | €000
Repayable on call and at short notice | 226,671 | 199,523
Term loans and advances | 2,902,650 | 3,023,378
Gross loans and advances to customers | 3,129,321 | 3,222,901
Allowance for ECL | (45,478) | (47,734)
Net loans and advances to customers | 3,083,843 | 3,175,167
Allowance for ECL |  |
– allowances booked under stage 1 | 14,662 | 10,177
– allowances booked under stage 2 | 13,463 | 18,744
– allowances booked under stage 3 | 17,353 | 18,813
| 45,478 | 47,734

Loans and advances to customers with a carrying amount of €109,665,000 (2022: €100,615,000) have been pledged against the provision of
credit lines by the Central Bank of Malta.

26 | Financial investments

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Measured at fair value through other comprehensive income: |  |  |  |
Debt instruments | 456,930 | 637,709 | 456,930 | 637,709
Equity and other non-fixed income instruments | 43 | 37 | 41 | 35
Measured at amortised cost: |  |  |  |
Debt instruments | 858,886 | 367,024 | 858,886 | 367,024
| 1,315,859 | 1,004,770 | 1,315,857 | 1,004,768

Notes on the financial statements

160 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Debt instruments measured at fair value through other comprehensive income
| Group/Bank
| 2023 | 2022
| €000 | €000
Issued by public bodies: |  |
– local government | 376,777 | 465,658
– foreign governments | 63,784 | 106,943
Issued by other bodies: |  |
– other foreign issuers | 16,369 | 65,108
| 456,930 | 637,709
Listing status: |  |
– listed on the Malta Stock Exchange | 376,777 | 465,658
– listed on other recognised exchanges | 80,153 | 172,051
| 456,930 | 637,709
At 1 Jan | 637,709 | 845,700
Exchange adjustments | (17) | 3,889
Amortisation of premium/discount | (2,839) | (5,166)
Acquisitions | 79,039 | 99,384
Disposals/redemptions | (277,958) | (255,296)
Changes in fair value | 20,996 | (50,802)
At 31 Dec | 456,930 | 637,709

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.
Credit loss allowances in respect of debt instruments measured at fair value through other comprehensive income amounted to €38,000 as at
31 December 2023 (2022: €60,000).
Debt securities measured at fair value through other comprehensive income with a carrying amount of €88,789,000 (2022: €82,760,000) have
been pledged against the provision of credit lines by the Central Bank of Malta. At 31 December 2023 and 2022, no balances were outstanding
against these credit lines. In addition, debt securities measured at fair value through other comprehensive income with a carrying amount of
€13,262,000 (2022: €11,105,000) have been pledged in terms of the Depositor Compensation Scheme (refer to Note 44).

Debt instruments measured at amortised cost
| Group/Bank
| 2023 | 2022
| €000 | €000
Issued by public bodies: |  |
– local government | 70,393 | 20,459
– foreign governments | 374,158 | 173,650
Issued by other bodies: |  |
– other foreign issuers | 414,335 | 172,915
| 858,886 | 367,024
Listing status: |  |
– listed on the Malta Stock Exchange | 70,393 | 20,459
– listed on other recognised exchanges | 788,493 | 346,565
| 858,886 | 367,024
At 1 Jan | 367,024 | —
Exchange adjustments | (31) | —
Acquisitions | 489,865 | 365,409
Amortisation of premium/discount | 7,128 | 1,615
Disposals/redemptions | (5,100) | —
At 31 Dec | 858,886 | 367,024

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 161

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.
Debt securities measured at amortised cost with a carrying amount of €4,324,000 (2022: Nil) have been pledged against the provision of credit
lines by the Central Bank of Malta. At 31 December 2023 and 2022, no balances were outstanding against these credit lines.
Debt instruments measured at amortised cost in the table above are shown net of credit loss allowances amounting to €29,000 (2022:€18,000).

Equity and other non-fixed income instruments
| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Issued by issuers other than public bodies and banks: |  |  |  |
– local issuers | 7 | 7 | 5 | 5
– foreign issuers | 36 | 30 | 36 | 30
| 43 | 37 | 41 | 35
Listing status: |  |  |  |
– unlisted | 43 | 37 | 41 | 35
| 43 | 37 | 41 | 35

The increase in value of equity instruments from €35,000 as at 31 December 2022 to €41,000 as at 31 December 2023 is due to an increase in
the equity’s fair value during the year.

27 | Prepayments, accrued income and other assets

| Group | Bank
| 2023 | 2022 1 | 2023 | 2022
| €000 | €000 | €000 | €000
Gross accrued interest | 26,995 | 23,693 | 24,377 | 21,198
Allowance for ECL | (4,672) | (5,559) | (4,672) | (5,559)
Net accrued interest | 22,323 | 18,134 | 19,705 | 15,639
Other accrued income | 2,071 | 1,134 | 1,966 | 1,040
Prepayments | 969 | 858 | 962 | 856
Committed letters of credit | 239 | 1,495 | 239 | 1,495
Amounts pledged in favour of the Single Resolution Fund | 1,760 | 1,513 | 1,760 | 1,513
Other | 6,337 | 10,958 | 5,454 | 8,470
| 33,699 | 34,092 | 30,086 | 29,013

1 From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative
information in respect of the financial year ended 31 December 2022 has been restated acco rdingly.
Committed letters of credit in the table above are shown net of credit loss allowances which amounted to €1,000 (2022: €5,000).
Other assets mainly comprise settlement account balances with international card payment processors.
The table above includes an amount of €1,760,000 (2022: €1,513,000) placed in an account held in respect of the Single Resolution Fund as an
Irrevocable Payment Commitment (‘IPC’) in terms of the Recovery and Resolution Regulations.

28 | Non-current assets held for sale

| Group/Bank
| 2023 | 2022
| €000 | €000
Assets acquired in satisfaction of debt | 2,749 | 3,269
Assets held for sale attributable to closed branches | 3,067 | 1,904
| 5,816 | 5,173

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. During the financial year ended 31 December 2023, profit on sale of
repossessed properties amounting to €45,000 (2022: €749,000) was recorded and is recognised in profit or loss under ‘Other operating income /
(expense)’.
Assets acquired in satisfaction of debt, amounting to €3,269,000 as at 31 December 2022, are net of an impairment provision of €22,000 which
was raised during the financial year ended 31 December 2022 in relation to a write down to fair value to a plot of land held for sale.
Based on an assessment performed by management during the financial year ended 31 December 2022, the carrying amount of a property
which was acquired in satisfaction of debt was deemed to be unrecoverable. In this respect, the related impairment provision amounting to
€200,000 was reversed and the gross carrying amount of €686,000 was written off.
In addition, a property with a carrying amount of €70,000 was disposed of during the financial year ended 31 December 2022, resulting in a gain
on disposal amounting to €149,000, whereas other assets with a carrying amount of €20,000 were written off during the year. Gains on
disposals realised during the financial year ended 31 December 2022 in respect of other repossessed properties with a carrying amount of nil
amounted to €600,000.
During the financial year ended 31 December 2023, management performed an impairment assessment in respect of its repossessed
properties, on the basis of which the carrying amount of one property was deemed to be unrecoverable. A provision amounting to €450,000
Notes on the financial statements

162 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

was raised in this regard. In addition, a property with a carrying amount of €70,000 was disposed of during the financial year ended
31 December 2023, resulting in a gain on disposal amounting to €45,000.
During 2021, a number of branches were not re-opened 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.
During the current financial year, land and buildings and other equipment with a carrying amount of €1,163,000 (2022: €554,000) attributable to a
specific closed branch were reclassified from Property, plant and equipment Note 32. The branch in question was revalued by an independent
property valuer upon reclassification, resulting in an increase in the property’s carrying amount of €537,000, which is reflected in the property
revaluation reserve accordingly.
During the financial year ended 31 December 2022, one branch with a carrying amount of €1,448,000 was disposed of. Upon sale, the property
revaluation reserve in respect of this branch, amounting to €1,256,000 net of deferred tax, was transferred to Retained Earnings Note 43. A gain
on disposal amounting to €440,000 was recognised in respect of this branch within profit or loss. No additional branches were disposed of
during the financial year ended 31 December 2023.
The carrying amount as at 31 December 2023 will be recovered through sale transactions rather than through continuing use.

29 | Investments in subsidiaries

| Bank
| Nature of business | Equity interest | 2023 | 2022
| % | €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.

30 | Investment property

| Group
| Fair value | Cost | Fair value | Cost
| 2023 | 2023 | 2022 | 2022
| €000 | €000 | €000 | €000
Freehold land and buildings |  |  |  |
At 1 Jan | — | — | 1,600 | 1,720
Disposals | — | — | (1,600) | (1,720)
At 31 Dec | — | — | — | —

The local group’s investment property was sold during the financial year ended 31 December 2022. No gains or losses were realised on disposal
given that the transaction price was equal to the carrying amount. No rental income was generated by the local group during the financial year
ended 31 December 2022.

31 | 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 le ases
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 38 Accruals, deferred income and
other liabilities.

| Group/Bank
| 2023 | 2022
Right-of-use assets | €000 | €000
At 1 Jan | 2,459 | 2,569
Additions | 456 | 875
Impact of derecognition of leased assets | (90) | —
Depreciation | (541) | (985)
At 31 Dec | 2,284 | 2,459
Lease liabilities at 31 Dec |  |
Current | 488 | 435
Non-current | 1,792 | 1,991
| 2,280 | 2,426

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 163

| Group/Bank
| 2023 | 2022
| €000 | €000
The income statement reflects the following amounts relating to leases: |  |
Depreciation charge of right-of-use assets | 541 | 985
Interest expense | 53 | 38
Expense relating to short-term leases (included in administrative expenses) | 47 | 10
Expense relating to leases of low-value assets that are not shown above as short-term leases (included in administrative expenses) | 332 | 287

The total cash payments for leases, including short-term and low-value leases, in 2023 was €1,119,000 (2022: €1,273,000).

32 | Property, plant and equipment

| Group
| Land and buildings | Computer equipment | Others | Total
| €000 | €000 | €000 | €000
Cost/revaluation |  |  |  |
At 1 Jan 2023 | 39,884 | 18,593 | 36,280 | 94,757
Additions | 8,126 | 427 | 570 | 9,123
Revaluation | 1,808 | — | — | 1,808
Disposals/Write offs | (214) | (3,043) | (267) | (3,524)
Transfers (refer to Note 28) | (1,210) | — | (10) | (1,220)
At 31 Dec 2023 | 48,394 | 15,977 | 36,573 | 100,944
Accumulated depreciation and impairment losses |  |  |  |
At 1 Jan 2023 | 1,792 | 17,165 | 31,173 | 50,130
Depreciation charge for the year | 257 | 502 | 1,272 | 2,031
Revaluation | (18) | — | — | (18)
Disposals/Write offs | (214) | (2,959) | (259) | (3,432)
Transfers (refer to Note 28) | (48) | — | (9) | (57)
Impairment losses | 503 | — | 93 | 596
At 31 Dec 2023 | 2,272 | 14,708 | 32,270 | 49,250
Carrying amount at 1 Jan 2023 | 38,092 | 1,428 | 5,107 | 44,627
Carrying amount at 31 Dec 2023 | 46,122 | 1,269 | 4,303 | 51,694
Cost/revaluation |  |  |  |
At 1 Jan 2022 | 36,292 | 18,093 | 37,861 | 92,246
Additions | 4,309 | 500 | 580 | 5,389
Revaluation | (63) | — | — | (63)
Disposals/Write offs | (45) | — | (1,986) | (2,031)
Transfers (refer to Note 28) | (609) | — | (175) | (784)
At 31 Dec 2022 | 39,884 | 18,593 | 36,280 | 94,757
Accumulated depreciation and impairment losses |  |  |  |
At 1 Jan 2022 | 1,870 | 16,677 | 31,776 | 50,323
Depreciation charge for the year | 274 | 488 | 1,553 | 2,315
Revaluation | (248) | — | — | (248)
Disposals/Write offs | (45) | — | (1,985) | (2,030)
Transfers (refer to Note 28) | (59) | — | (171) | (230)
At 31 Dec 2022 | 1,792 | 17,165 | 31,173 | 50,130
Carrying amount at 1 Jan 2022 | 34,422 | 1,416 | 6,085 | 41,923
Carrying amount at 31 Dec 2022 | 38,092 | 1,428 | 5,107 | 44,627

Notes on the financial statements

164 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

| Bank
| Land and buildings | Computer equipment | Others | Total
| €000 | €000 | €000 | €000
Cost/revaluation |  |  |  |
At 1 Jan 2023 | 39,884 | 18,355 | 36,069 | 94,308
Additions | 8,126 | 427 | 570 | 9,123
Revaluation | 1,808 | — | — | 1,808
Disposals/Write offs | (214) | (3,031) | (252) | (3,497)
Transfers (refer to Note 28) | (1,210) | — | (10) | (1,220)
At 31 Dece 2023 | 48,394 | 15,751 | 36,377 | 100,522
Accumulated depreciation and impairment losses |  |  |  |
At 1 Jan 2023 | 1,792 | 16,927 | 30,966 | 49,685
Depreciation charge for the year | 257 | 502 | 1,271 | 2,030
Revaluation | (18) | — | — | (18)
Disposals/Write offs | (214) | (2,947) | (244) | (3,405)
Transfers (refer to Note 28) | (48) | — | (9) | (57)
Impairment losses | 503 | — | 93 | 596
At 31 Dec 2023 | 2,272 | 14,482 | 32,077 | 48,831
Carrying amount at 1 Jan 2023 | 38,092 | 1,428 | 5,103 | 44,623
Carrying amount at 31 Dec 2023 | 46,122 | 1,269 | 4,300 | 51,691
Cost/revaluation |  |  |  |
At 1 Jan 2022 | 36,292 | 17,855 | 37,652 | 91,799
Additions | 4,309 | 500 | 578 | 5,387
Revaluation | (63) | — | — | (63)
Disposals/Write offs | (45) | — | (1,986) | (2,031)
Transfers (refer to Note 28) | (609) | — | (175) | (784)
At 31 Dec 2022 | 39,884 | 18,355 | 36,069 | 94,308
Accumulated depreciation and impairment losses |  |  |  |
At 1 Jan 2022 | 1,870 | 16,439 | 31,569 | 49,878
Depreciation charge for the year | 274 | 488 | 1,553 | 2,315
Revaluation | (248) | — | — | (248)
Disposals/Write offs | (45) | — | (1,985) | (2,030)
Transfers (refer to Note 28) | (59) | — | (171) | (230)
At 31 Dec 2022 | 1,792 | 16,927 | 30,966 | 49,685
Carrying amount at 1 Jan 2022 | 34,422 | 1,416 | 6,083 | 41,921
Carrying amount at 31 Dec 2022 | 38,092 | 1,428 | 5,103 | 44,623

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 were not re-opened. In this regard, during the current financial year,
land and buildings and other equipment with a carrying amount of €1,163,000 (2022: €554,000) attributable to a specific closed branch was
reclassified to Non-current assets held for sale, as its 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 €1,322,000 (2022: €1,972,000) have not been reclassified to
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.
During the current financial year, a long leasehold property and related fixtures with a carrying amount of €596,000 was fully impaired on the
basis of a valuation carried out by the local group’s appointed external valuer. In this respect, an impairment loss amounting to €596,000 was
recognised in profit or loss within ‘Depreciation and impairment of property, plant and equipment and right-of-use assets’. During 2023,
equipment with a carrying amount of €92,000 was disposed of following a decision to upgrade the bank’s ATM network in Malta, giving rise to a
loss on disposal amounting to €64,000 recognised within ‘Other operating income/(expense)’. In addition, during the financial year ended
31 December 2022, equipment with a carrying amount of €1,000 was disposed of following termination of a lease agreement.
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
| 2023 | 2022
| €000 | €000
At 31 Dec |  |
Cost | 19,739 | 11,827
Accumulated depreciation | (2,290) | (2,040)
Carrying amount | 17,449 | 9,787

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 2023 | 165

33 | Intangible assets

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Software | 20,762 | 19,169 | 20,356 | 18,604
| 20,762 | 19,169 | 20,356 | 18,604

Software
| Group | Bank
| 2023 | 2022 | 2023 | 2022
Cost | €000 | €000 | €000 | €000
At 1 Jan | 59,909 | 52,490 | 57,577 | 50,238
Additions | 6,880 | 7,419 | 6,822 | 7,339
Write offs | (43) | — | (43) | —
At 31 Dec | 66,746 | 59,909 | 64,356 | 57,577
Accumulated amortisation |  |  |  |
At 1 Jan | 40,740 | 35,887 | 38,973 | 34,216
Amortisation and impairment charge for the year | 5,244 | 4,853 | 5,027 | 4,757
At 31 December | 45,984 | 40,740 | 44,000 | 38,973
Carrying amount at 1 Jan | 19,169 | 16,603 | 18,604 | 16,022
Carrying amount at 31 Dec | 20,762 | 19,169 | 20,356 | 18,604

As a result of the adoption of IFRS 17, the PVIF intangible asset was removed, as explained in further detail in Note 49.

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
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Deferred tax assets | 31,002 | 35,767 | 30,623 | 35,620
Deferred tax liabilities | (3,727) | (3,569) | (3,727) | (3,569)
| 27,275 | 32,198 | 26,896 | 32,051

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% ( 2022: 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 (2022: 8% or 10%).
The local group has concluded that the deferred tax assets will be recoverable using the estimated future taxable income based on the approved
business plans and budgets for the local group.
The balance at 31 December represents temporary differences attributable to:

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Depreciation of property, plant and equipment | (2,440) | (2,164) | (2,422) | (2,140)
Expected credit loss allowances | 18,049 | 19,151 | 18,049 | 19,151
Fair valuation of properties | (3,727) | (3,569) | (3,727) | (3,569)
Fair value of financial instruments | 7,401 | 12,086 | 7,401 | 12,086
Impact of IFRS 17 transition | — | (324) | — | —
Provisions | 7,186 | 6,565 | 6,790 | 6,128
Right-of-use assets | (799) | (861) | (799) | (861)
Lease liabilities | 798 | 849 | 798 | 849
Other | 807 | 465 | 806 | 407
| 27,275 | 32,198 | 26,896 | 32,051

Notes on the financial statements

166 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

The movement in deferred tax assets and liabilities during the year is as follows:

| Group
| At 1 Jan 2023 | Recognised in profit or loss | Recognised in OCI | Recognised directly in equity | At 31 Dec 2023
| €000 | €000 | €000 | €000 | €000
Depreciation of property, plant and equipment | (2,164) | (276) | — | — | (2,440)
Expected credit loss allowances | 19,151 | (1,102) | — | — | 18,049
Fair valuation of properties | (3,569) | 25 | (183) | — | (3,727)
Fair value movements on financial instruments | 12,086 | — | (4,685) | — | 7,401
Impact of IFRS 17 transition | (324) | 324 | — | — | —
Provisions | 6,565 | 613 | 8 | — | 7,186
Right-of-use assets | (861) | 62 | — | — | (799)
Lease liabilities | 849 | (51) | — | — | 798
Other | 465 | 284 | — | 58 | 807
| 32,198 | (121) | (4,860) | 58 | 27,275
| At 1 Jan 2022 | Recognised in profit or loss | Recognised in OCI | Recognised directly in equity | At 31 Dec 2022
| €000 | €000 | €000 | €000 | €000
Depreciation of property, plant and equipment | (1,653) | (511) | — | — | (2,164)
Expected credit loss allowances | 24,176 | (5,025) | — | — | 19,151
Fair valuation of properties | (3,722) | 172 | (19) | — | (3,569)
Fair value movements on financial instruments | (393) | — | 12,479 | — | 12,086
Impact of IFRS 17 transition | 375 | (699) | — | — | (324)
Provisions | 6,994 | 52 | (481) | — | 6,565
Right-of-use assets | (899) | 38 | — | — | (861)
Lease liabilities | 858 | (9) | — | — | 849
Other | 501 | (96) | — | 60 | 465
| 26,237 | (6,078) | 11,979 | 60 | 32,198

| Bank
| At 1 Jan 2023 | Recognised in profit or loss | Recognised in OCI | Recognised directly in equity | At 31 Dec 2023
| €000 | €000 | €000 | €000 | €000
Depreciation of property, plant and equipment | (2,140) | (282) | — | — | (2,422)
Expected credit loss allowances | 19,151 | (1,102) | — | — | 18,049
Fair valuation of properties | (3,569) | 25 | (183) | — | (3,727)
Fair value movements on financial instruments | 12,086 | — | (4,685) | — | 7,401
Provisions | 6,128 | 654 | 8 | — | 6,790
Right-of-use assets | (861) | 62 | — | — | (799)
Lease liabilities | 849 | (51) | — | — | 798
Other | 407 | 341 | — | 58 | 806
| 32,051 | (353) | (4,860) | 58 | 26,896
| At 1 Jan 2022 | Recognised in profit or loss | Recognised in OCI | Recognised directly in equity | At 31 Dec 2022
| €000 | €000 | €000 | €000 | €000
Depreciation of property, plant and equipment | (1,658) | (482) | — | — | (2,140)
Expected credit loss allowances | 24,176 | (5,025) | — | — | 19,151
Fair valuation of properties | (3,722) | 172 | (19) | — | (3,569)
Fair value movements on financial instruments | (393) | — | 12,479 | — | 12,086
Provisions | 6,599 | 10 | (481) | — | 6,128
Right-of-use assets | (899) | 38 | — | — | (861)
Lease liabilities | 858 | (9) | — | — | 849
Other | 436 | (89) | — | 60 | 407
| 25,397 | (5,385) | 11,979 | 60 | 32,051

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 | Deposits by banks

As at 31 December 2023, deposits by banks represented balances repayable on demand amounting to €5,117,000 (2022: €2,861,000).

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 167

36 | Customer accounts

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Term deposits | 764,735 | 694,071 | 764,735 | 694,071
Repayable on demand | 5,376,785 | 5,276,887 | 5,407,534 | 5,316,321
| 6,141,520 | 5,970,958 | 6,172,269 | 6,010,392

37 | Liabilities under investment contracts

| Group
| 2023 | 2022
| €000 | €000
At 1 Jan | 162,123 | 185,137
Premiums received | 2,109 | 6,141
Amounts paid on surrender and other terminations during the year | (18,420) | (12,064)
Changes in unit prices and other movements | 11,146 | (17,091)
At 31 Dec | 156,958 | 162,123

38 | Accruals, deferred income and other liabilities

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Accrued interest | 4,976 | 1,864 | 4,771 | 1,677
Accrued expenses | 34,007 | 25,163 | 28,697 | 20,444
Deferred income | 247 | 273 | 134 | 158
Committed letters of credit | 240 | 1,500 | 240 | 1,500
Lease liabilities (refer to Note 31) | 2,280 | 2,426 | 2,280 | 2,426
Other | 13,305 | 11,324 | 8,639 | 7,141
| 55,055 | 42,550 | 44,761 | 33,346

Other liabilities mainly comprise settlement account balances with international card payment processors and direct insurance payables.

39 | Provisions

| Group
| Termination benefits | Litigation provision | Post employment and other long-term employee benefits | Other provisions | Total
| €000 | €000 | €000 | €000 | €000
Provisions (excluding contractual commitments) |  |  |  |  |
At 31 Dec 2022 | 1,786 | 2,108 | 11,819 | 2,623 | 18,336
Additions | 950 | 1,104 | 975 | 294 | 3,323
Amounts utilised | (1,666) | (629) | (125) | (183) | (2,603)
Unused amounts reversed | (128) | (626) | (9) | (256) | (1,019)
Remeasurement of post employment and other long-term employee benefits | — | — | 1,969 | — | 1,969
At 31 Dec 2023 | 942 | 1,957 | 14,629 | 2,478 | 20,006
|  |  | Loan commitments and financial guarantees | Performance and other guarantees | Total
|  |  | €000 | €000 | €000
Provisions in respect of contractual commitments |  |  |  |  |
At 31 Dec 2022 |  |  | 1,322 | 422 | 1,744
Movement during the year |  |  | (4) | 103 | 99
At 31 Dec 2023 |  |  | 1,318 | 525 | 1,843
Total Provisions |  |  |  |  |
At 31 Dec 2022 |  |  |  |  | 20,080
At 31 Dec 2023 |  |  |  |  | 21,849

Notes on the financial statements

168 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

| Group
| Termination benefits | Litigation provision | Post employment and other long- term employee benefits | Other provisions | Total
| €000 | €000 | €000 | €000 | €000
Provisions (excluding contractual commitments) |  |  |  |  |
At 31 Dec 2021 | 2,042 | 1,207 | 13,293 | 2,940 | 19,482
Additions | 1,558 | 963 | 729 | 623 | 3,873
Amounts utilised | (1,814) | (2) | (376) | (754) | (2,946)
Unused amounts reversed | — | (60) | (305) | (186) | (551)
Remeasurement of post employment and other long-term employee benefits | — | — | (1,522) | — | (1,522)
At 31 Dec 2022 | 1,786 | 2,108 | 11,819 | 2,623 | 18,336
|  |  | Loan commitments and financial guarantees | Performance and other guarantees | Total
|  |  | €000 | €000 | €000
Provisions in respect of contractual commitments |  |  |  |  |
At 31 Dec 2021 |  |  | 1,266 | 504 | 1,770
Movement during the year |  |  | 56 | (82) | (26)
At 31 Dec 2022 |  |  | 1,322 | 422 | 1,744
Total Provisions |  |  |  |  |
At 31 Dec 2021 |  |  |  |  | 21,252
At 31 Dec 2022 |  |  |  |  | 20,080

| Bank
| Termination benefits | Litigation provision | Post employment and other long- term employee benefits | Other provisions | Total
| €000 | €000 | €000 | €000 | €000
Provisions (excluding contractual commitments) |  |  |  |  |
At 31 Dec 2022 | 1,786 | 1,988 | 11,819 | 1,493 | 17,086
Additions | 950 | 1,104 | 975 | 294 | 3,323
Amounts utilised | (1,666) | (629) | (125) | (183) | (2,603)
Unused amounts reversed | (128) | (506) | (9) | (256) | (899)
Remeasurement of post employment and other long-term employee benefits | — | — | 1,969 | — | 1,969
At 31 Dec 2023 | 942 | 1,957 | 14,629 | 1,348 | 18,876
|  |  | Loan commitments and financial guarantees | Performance and other guarantees | Total
|  |  | €000 | €000 | €000
Provisions in respect of contractual commitments |  |  |  |  |
At 31 Dec 2022 |  |  | 1,322 | 422 | 1,744
Movement during the year |  |  | (4) | 103 | 99
At 31 Dec 2023 |  |  | 1,318 | 525 | 1,843
Total Provisions |  |  |  |  |
At 31 Dec 2022 |  |  |  |  | 18,830
At 31 Dec 2023 |  |  |  |  | 20,719

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 169

| Bank
| Termination benefits | Litigation provision | Post employment and other long- term employee benefits | Other provisions | Total
| €000 | €000 | €000 | €000 | €000
Provisions (excluding contractual commitments) |  |  |  |  |
At 31 Dec 2021 | 2,042 | 1,207 | 13,293 | 1,810 | 18,352
Additions | 1,558 | 843 | 729 | 623 | 3,753
Amounts utilised | (1,814) | (2) | (376) | (754) | (2,946)
Unused amounts reversed | — | (60) | (305) | (186) | (551)
Remeasurement of post employment and other long-term employee benefits | — | — | (1,522) | — | (1,522)
At 31 Dec 2022 | 1,786 | 1,988 | 11,819 | 1,493 | 17,086
|  |  | Loan commitments and financial guarantees | Performance and other guarantees | Total
|  |  | €000 | €000 | €000
Provisions in respect of contractual commitments |  |  |  |  |
At 31 Dec 2021 |  |  | 1,266 | 504 | 1,770
Movement during the year |  |  | 56 | (82) | (26)
At 31 Dec 2022 |  |  | 1,322 | 422 | 1,744
Total Provisions |  |  |  |  |
At 31 Dec 2021 |  |  |  |  | 20,122
At 31 Dec 2022 |  |  |  |  | 18,830

(a)Termination benefits
In 2021, the bank announced a 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, two Voluntary Redundancy Schemes were issued by the
bank during 2021 and 2022. Specifically, a provision for €3,208,000 was recognised in 2021 in respect of voluntary redundancies for 33 full time
equivalent employees, with another provision for €1,558,000 recognised in 2022 in respect of the planned transfer of 11 full time equivalent
employees and their related activities to a local service provider.
These schemes were introduced in view of the reduction in head count as a result of the transformation and automation of certain areas within
the bank, and reflect the full amount of payments agreed with the employees who applied for these voluntary redundancy schemes. These
provisions, attributable to local group and bank, were fully utilised by 31 December 2023, with the exception of an amount of €128,000
attributable to one application for the scheme announced in 2022 that was withdrawn during 2023.
During the financial year ended 31 December 2023, the bank recognised another provision to further align its structure to the HSBC Group’s
operating model. In this respect, a provision amounting to €950,000, attributable to the local group and bank, was recognised during 2023.
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 2023 amounted to €1,957,000 for both the local group and bank (2022: €2,108,000 for the local group
and €1,988,000 for the 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 2023, comprising a net increase in provision of €478,000
for the local group and €598,000 for the bank (2022: a net increase in provision of €903,000 for the local group and €783,000 for the bank), is
recognised in profit or loss under ‘General and administrative expenses’, whilst amounts utilised during the year amounts to €629,000 (2022:
€2,000) for both the local group and the bank.
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 cases opened against the local group and the bank.
(c)Post employment and other 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
obligations as at 31 December 2023 have been estimated at €14,629,000 (2022: €11,819,000) by independent actuaries using the projected unit
credit method. In 2022, 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 €305,000, which is mainly the result of the planned transfer of a number of employees to a
local service provider. In 2023, another release amounting to €9,000 was recognised in profit or loss to reflect the actual number of employees
that benefited from the retirement bonus as stipulated within the Collective Agreement during the current financial year.
Furthermore, net current service charges of €975,000 (2022: €729,000) reported under ‘Additions’ were recognised in the income statements.
In addition, actuarial losses attributable to changes in financial assumptions, demographic assumptions and experience adjustments of €22,000
(2022: a gain of €1,374,000) in respect of post-employment benefits and €1,947,000 (2022: a gain of €148,000) attributable to long-term
employee benefits, reported under ‘Remeasurement of post employment and other long-term employee benefits’, were recognised in other
comprehensive income and in profit or loss, respectively.
Notes on the financial statements

170 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

The present value of the defined benefit obligation at 31 December 2023 and 2022 has been estimated after taking into consideration the
following assumptions:
– a rate of 3.80% (2022: 3.65%) 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;
– an inflation rate of 2.50% (2022: 2.50%) in line with the eurozone inflation curve;
– a salary increase assumption of 6.00% including cost of living allowance for 2024 (2022: 4.00% plus cost of living adjustments for 2023) and
5.00% including cost of living adjustments for 2025-2026 and 3% including cost of living adjustments for 2027 onwards (2022: 3.00% from
2024 onwards);
– withdrawal 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;
– retirement age of 65 (2022: 62);
– mortality rates based on generational tables used by actuaries; and
– ill 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 provisions
Other provisions as at 31 December 2023 amounted to €2,478,000 for the local group (2022: €2,623,000) and €1,348,000 (2022: €1,493,000) for
the bank. This represents mainly an onerous contract provision resulting from a closed investment product held by one of the subsidiary
companies whereby future losses were estimated and a provision for obligations in respect of medical insurance cost for employees who
retired under previous voluntary schemes.
(e)Provisions in respect of contractual commitments
The component of provisions for liabilities and other charges in respect of contractual commitments represents expected credit losses in
relation to off-balance sheet financial guarantee contracts and commitments where the local group has become party to an irrevocable
commitment, as defined under IFRS 9 ‘Financial Instruments’. As at 31 December 2023, expected credit losses under IFRS 9 in respect of
these commitments amounted to €1,318,000 (2022: €1,322,000). The movement in expected credit losses in respect of such instruments is
disclosed within the ‘Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and
customers including loan commitments and financial guarantees’ within Note 4(b)(iii).
Contractual commitments also comprise performance and other guarantee contracts that fall outside the scope of IFRS 9, including standby
letters of credit and non-financial guarantees, such as performance guarantees. As at 31 December 2023, provisions calculated in accordance
with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ in respect of such instruments amounted to €525,000 (2022: €422,000).
Further details in this respect are set out in Note 44.

40 | Borrowings from a group undertaking

In December 2021, the bank 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 2023, the interest rate was 5.10%
(2022: 3.25%).
In December 2023, the bank has agreed to a transfer arrangement of the above mentioned €60,000,000 loan agreement with HSBC Bank plc,
by virtue of which the loan agreement was transferred to HSBC Continental Europe, as the new parent company of HSBC Bank Malta p.l.c.
following the change of control in November 2022. No changes to the terms and conditions of the original loan agreement were made.
In January 2023, the bank entered into a €30,000,000 loan agreement with HSBC Continental Europe. This loan is unsecured and has been
granted on normal commercial terms for a period of 4 years with maturity date of 30 January 2027 and an option of early repayment, 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 127 basis points. As at 31 December 2023, the interest rate was 5.22%.
The purpose of these loans is to enable the Bank to meet the minimum requirement for own funds and eligible liabilities (‘MREL’) as set by the
Single Resolution Board. Both loans are designated as, and will constitute, the lower ranking liabilities referred to in regulation 108(4) of the
Recovery and Resolution Regulations (Subsidiary Legislation 330.09).

41 | Subordinated liabilities

As at 31 December 2022, the bank’s subordinated liabilities comprised a €62,000,000 subordinated unsecured loan stock, with maturity date of
14 December 2028, issued in December 2018 to HSBC Bank plc and having a floating rate linked to three-month Euribor. As at 31 December
2022, the interest rate was 4.11%.
On 14 December 2023, the €62,000,000 subordinated unsecured loan stock was repaid in full in terms of the early redemption option included
in the contractual agreement. On the same date, a new subordinated loan amounting to €65,000,000 was entered into with HSBC Continental
Europe. The term of the subordinated loan is 10 years, with a maturity date of 14 December 2033 and an option of early redemption after 5
years. It bears interest at a rate equal to three-month Euribor plus a margin of 237 basis points. As at 31 December 2023, the interest rate was
6.33%.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 171

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.

42 | Called up share capital

| Group/Bank
| 2023 | 2022
| €000 | €000
Authorised |  |
470,000,000 ordinary shares of 30 cent each | 141,000 | 141,000
Issued and fully paid up |  |
360,306,099 ordinary shares of 30 cent each | 108,092 | 108,092

43 | Reserves

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.

| Group/Bank
| €000
On land and buildings |
1 Jan 2022 | 23,599
– surplus arising on revaluation | 185
– deferred tax on revaluation loss | (19)
– transfer to retained earnings upon realisation through disposal | (1,396)
– deferred tax on transfer upon realisation through disposal | 140
31 Dec 2022 | 22,509
– surplus arising on revaluation | 1,826
– deferred tax on revaluation surplus | (183)
31 Dec 2023 | 24,152
On financial investments |
1 Jan 2022 | 731
– fair value adjustments | (35,655)
– deferred tax on fair value adjustments | 12,479
31 Dec 2022 | (22,445)
– fair value adjustments | 13,386
– deferred tax on fair value adjustments | (4,685)
31 Dec 2023 | (13,744)
Total revaluation reserve |
Total at 31 Dec 2022 | 64
Total at 31 Dec 2023 | 10,408

44 | Contingent liabilities, contractual commitments and guarantees

| Group Contract amount | Bank Contract amount
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Guarantees and other contingent liabilities: |  |  |  |
– financial guarantees | 10,279 | 11,787 | 10,279 | 11,787
– performance and other guarantees | 156,601 | 137,399 | 156,601 | 137,399
– standby letters of credit | 17,689 | 18,130 | 17,689 | 18,130
– other contingent liabilities | 15,926 | 14,934 | 15,876 | 14,934
At 31 Dec | 200,495 | 182,250 | 200,445 | 182,250
Commitments: |  |  |  |
– documentary credits | 6,216 | 17,816 | 6,216 | 17,816
– standby facilities, credit lines and other commitments to lend | 832,443 | 824,504 | 832,443 | 824,504
At 31 Dec | 838,659 | 842,320 | 838,659 | 842,320

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. Guarantees and standby
letters of credit have a term of less than one year.
Guarantees provided by the local group comprise financial guarantees as well as performance and other guarantees. Financial guarantees are
within the scope of the impairment requirements emanating from IFRS 9 in view of the fact that these represent irrevocable commitments
Notes on the financial statements

172 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

which exposes the local group to credit risk. In contrast, performance and other guarantees represent transaction-related guarantees and, as
such, do not meet the definition of financial guarantees in accordance with IFRS 9. Similarly, standby letters of credit represent exposures
relating to particular contracts or to non-financial transactions. In this respect, performance guarantees and standby letters of credit fall outside
the scope of the impairment requirements emanating from IFRS 9 in view of the fact that such contracts do not give rise to credit risk.
Consequently, the local group assesses whether such contracts give rise to provisions or contingent liabilities in line with the requirements
emanating from IAS 37.
The above table discloses the nominal principal amounts, which represents the maximum amounts at risk should the contracts be fully drawn
upon. 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.
Other contingent liabilities relate to possible future contributions payable to the Depositor Compensation Scheme ('DCS') and the Single
Resolution Fund ('SRF'), as well as legal claims against the bank.The DCS provides compensation, up to certain limits, to eligible customers of
credit institutions that are unable, or likely to be unable, to pay claims against them. The DCS may impose a further contribution on the bank to
the extent the contributions imposed to date are not sufficient to cover the compensation due to customers in any future possible collapse. The
ultimate contribution to the industry as a result of a collapse cannot be estimated reliably. It is dependent on various uncertain factors including
the potential recovery of assets by the DCS, changes in the level of protected products (including deposits and investments) and the population
of DCS members at the time. At 31 December 2023, assets pledged in favour of the DCS comprised debt securities measured at fair value
through other comprehensive income with a carrying amount of €13,262,000 (2022: €11,050,000). The Depositor Compensation Scheme
reserve amounts to €12,735,000 (2022: €11,111,000). A contingent liability for an identical amount is disclosed in the table above to reflect the
possibility that this commitment becomes payable.
In addition, in accordance with article 70(3) of Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014
establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a
Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010, the available financial means of the
SRF may include irrevocable payment commitments which are fully backed by unencumbered collateral of low-risk assets. The share of
irrevocable payment commitments cannot exceed 30% of the total amount of contributions. At 31 December 2023, irrevocable payment
commitments to the SRF amounted to €1,760,000 (2022: €1,513,000), reflecting cash collateral amounting to 22.5% of total payment
obligations to the SRF. The cash collateral is classified within 'Other assets' in the statement of financial position. In addition, a contingent
liability for an identical amount is disclosed in the table above to reflect the possibility that this commitment becomes payable.
Other contingent liabilities also include legal claims against the bank amounting to €1,744,000 (2022: €2,310,000) . 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. The above commitments exclude commitments in relation to capital expenditure which are disclosed in
Note 45.
The local group also enters into loan commitments in the form of documentary credits, undrawn formal standby facilities and credit lines and
other commitments to lend. These represent irrevocable commitments to lend and, as such, give rise to an exposure to credit risk in the event
that these contracts are fully drawn and the client defaults. The local group measures ECL in respect of such commitments in accordance with
the impairment requirements emanating from IFRS 9.
The expected credit loss allowances relating to financial guarantees and commitments is disclosed in Note 4.

45 | Capital commitments

Capital commitments as at 31 December 2023 amounting to €14,953,000 (2022: €1,164,000 ) are mainly related to the acquisition of property,
plant and equipment.

46 | Cash and cash equivalents

| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Balances of cash and cash equivalents are analysed below: |  |  |  |
Cash | 33,582 | 29,500 | 33,582 | 29,500
Malta Government Treasury Bills of three months or less | — | 232,346 | — | 232,346
Balances with Central Bank of Malta (excluding reserve deposit) of three months or less | 1,199,750 | 1,209,987 | 1,199,750 | 1,209,987
Loans and advances to banks of one month or less | 602,291 | 481,646 | 597,940 | 475,370
Items in course of collection from other banks | 8,427 | 6,921 | 8,427 | 6,921
Less: Items in course of transmission to other banks | (18,359) | (27,397) | (18,359) | (27,397)
Per Statements of Cash Flows | 1,825,691 | 1,933,003 | 1,821,340 | 1,926,727
Adjustment to reflect balances with contractual maturity of more than one or three months as applicable | 561,599 | 362,361 | 561,507 | 362,361
Per Statements of Financial Position | 2,387,290 | 2,295,364 | 2,382,847 | 2,289,088
Analysed as follows: |  |  |  |
Cash and balances with Central Bank of Malta | 1,291,059 | 1,298,853 | 1,291,059 | 1,298,853
Malta Government Treasury Bills | 385,580 | 284,494 | 385,580 | 284,494
Loans and advances to banks | 720,583 | 732,493 | 716,140 | 726,217
Items in course of collection from other banks | 8,427 | 6,921 | 8,427 | 6,921
Items in course of transmission to other banks | (18,359) | (27,397) | (18,359) | (27,397)
| 2,387,290 | 2,295,364 | 2,382,847 | 2,289,088

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 173

47 | 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,
payments and cash management. 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.
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 on the next page 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 on the next page. 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 2023, there were no significant items requiring adjustment. Accordingly, the adjusted profit by global business reported below is the
same as the reported profit.
During 2022, the bank incurred restructuring costs amounting to €1,558,000 attributable to the local group and bank to continue implementing
the bank’s latest strategic initiative, which demanded the issuance of a Voluntary Redundancy Scheme as outlined in Note 16, which was
treated as a significant item in view of its non-recurring nature. As a result, the adjusted profit by global business reported on the next page is
higher than the reported profit.
Notes on the financial statements

174 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

| Group
| 2023
| Wealth and Personal Banking | Commercial Banking | Global Markets | Group Total
| €000 | €000 | €000 | €000
Net interest income | 143,027 | 52,785 | — | 195,812
– external | 127,887 | 67,925 | — | 195,812
– internal | 15,140 | (15,140) | — | —
Net non-interest income | 12,063 | 11,376 | 3,615 | 27,054
Insurance service result | 5,030 | — | — | 5,030
Net income/(expense) from assets and liabilities of insurance businesses, measured at fair value | 48,068 | — | — | 48,068
Insurance finance (expense)/income | (44,294) | — | — | (44,294)
Net operating income before loan impairment charges | 163,894 | 64,161 | 3,615 | 231,670
Change in expected credit losses and other credit impairment charges | 1,308 | 3,272 | — | 4,580
Net operating income | 165,202 | 67,433 | 3,615 | 236,250
Employee compensation and benefits | (32,390) | (9,716) | (501) | (42,607)
General and administrative expenses | (38,447) | (12,593) | (337) | (51,377)
Depreciation and impairment of property, plant and equipment and right-of-use assets | (2,708) | (451) | (9) | (3,168)
Amortisation and impairment of intangible assets | (3,846) | (1,372) | (26) | (5,244)
Total operating expenses | (77,391) | (24,132) | (873) | (102,396)
Reported/Adjusted profit before tax | 87,811 | 43,301 | 2,742 | 133,854
Reported balance sheet data |  |  |  |
Loans and advances to customers (net) | 2,192,535 | 891,308 | — | 3,083,843
Financial assets mandatorily measured at fair value through profit or loss | 693,024 | — | — | 693,024
Total external assets | 5,701,093 | 1,945,396 | 14,430 | 7,660,919
Customer accounts | 4,518,941 | 1,622,579 | — | 6,141,520
Liabilities under investment contracts | 156,958 | — | — | 156,958
Insurance contract liabilities | 519,363 | — | — | 519,363
| 2022 1
| Wealth and Personal Banking | Commercial Banking | Global Markets | Group Total
| €000 | €000 | €000 | €000
Net interest income | 75,821 | 32,421 | — | 108,242
– external | 75,894 | 32,348 | — | 108,242
– internal | (73) | 73 | — | —
Net non-interest income | 13,440 | 13,286 | 3,799 | 30,525
Insurance service result | 5,278 | — | — | 5,278
Net income/(expense) from assets and liabilities of insurance businesses, measured at fair value | (74,744) | — | — | (74,744)
Insurance finance (expense)/income | 76,496 | — | — | 76,496
Net operating income before loan impairment charges | 96,291 | 45,707 | 3,799 | 145,797
Change in expected credit losses and other credit impairment charges | (2,691) | 12,252 | — | 9,561
Net operating income | 93,600 | 57,959 | 3,799 | 155,358
Employee compensation and benefits | (28,642) | (8,336) | (416) | (37,394)
General and administrative expenses | (39,694) | (12,607) | (363) | (52,664)
Depreciation and impairment of property, plant and equipment and right-of-use assets | (2,635) | (654) | (12) | (3,301)
Amortisation and impairment of intangible assets | (3,465) | (1,364) | (24) | (4,853)
Total operating expenses | (74,436) | (22,961) | (815) | (98,212)
Adjusted profit before tax | 19,164 | 34,998 | 2,984 | 57,146
Reported balance sheet data |
Loans and advances to customers (net) | 2,264,031 | 911,136 | — | 3,175,167
Financial assets mandatorily measured at fair value through profit or loss | 660,446 | — | — | 660,446
Total external assets | 5,649,610 | 1,660,474 | 26,562 | 7,336,646
Customer accounts | 4,545,286 | 1,425,672 | — | 5,970,958
Liabilities under investment contracts | 162,123 | — | — | 162,123
Insurance contract liabilities | 499,507 | — | — | 499,507
1 From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative information in respect of the financial year ended 31 December 2022 has been restated accordingly.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 175

Reconciliation of reported and adjusted profit by global business
A reconciliation of reported and adjusted profit by global business in respect of the financial year ended 31 December 2022 is shown in the table below.
| Group
| 2022
| Wealth and Personal Banking | Commercial Banking | Global Markets | Group Total
| €000 | €000 | €000 | €000
Adjusted profit before tax | 19,173 | 34,989 | 2,984 | 57,146
Significant item: |  |  |  |
– Restructuring provision | (1,288) | (252) | (18) | (1,558)
Reported profit before tax | 17,885 | 34,737 | 2,966 | 55,588

48 | Related party transactions

During the period up to 30 November 2022, the immediate parent company of the local group and bank was HSBC Europe B.V., a company
incorporated in the Netherlands, with the registered address at Karspeldreef 6K, Amsterdam, 1101 CJ, Netherlands.
In accordance with the company announcement dated 30 November 2022, the immediate parent company of the local group and the bank
became HSBC Continental Europe (‘HBCE’) as of that date, a company incorporated in France, with its registered address 38, avenue Kléber –
75116 Paris.
The ultimate parent company of the local group and the bank is and remains 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 (excluding General Counsel, Head of Internal
Audit, Head of Human Resources and Head of Communications).
(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
| 2023 | 2023 | 2022 | 2022
| €000 | €000 | €000 | €000
Loans and advances to customers | 2,411 | 2,411 | 2,131 | 2,131
Commitments to lend | 1,040 | 612 | 854 | 563
Deposits | 2,660 | 2,256 | 3,647 | 3,072

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.
Notes on the financial statements

176 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

(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
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Directors’ emoluments (including Non-Executive Directors) |  |  |  |
Salaries and other emoluments | 1,844 | 2,033 | 1,223 | 1,271
Benefits | 107 | 124 | 98 | 117
Share-based payments | 43 | 32 | 43 | 32
| 1,994 | 2,189 | 1,364 | 1,420
Other key management personnel |  |  |  |
Salaries and other emoluments | 1,674 | 742 | 1,674 | 742
Benefits | 67 | 56 | 67 | 56
Share-based payments | 24 | 8 | 24 | 8
| 1,765 | 806 | 1,765 | 806

Directors’ emoluments for the local group include the compensation of certain key management personnel of the bank amounting to €340,000
(2022: €488,000) that also serve as Directors of subsidiary companies, as well as the compensation of Non-Executive Directors of subsidiary
companies amounting to €65,000 (2022: €64,000).
(c)Balances and transactions with other related parties

Balance and transactions with HSBC Continental Europe
| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Assets |  |  |  |
Derivatives | 10,386 | 20,161 | 10,386 | 20,161
Loans and advances to banks | 712,524 | 659,843 | 709,320 | 659,843
Prepayments, accrued income and other assets | 1,520 | 921 | 1,520 | 921
Liabilities |  |  |  |
Deposits by banks | 3,853 | — | 3,853 | —
Borrowings from group undertaking | 90,000 | — | 90,000 | —
Subordinated liabilities | 65,000 | — | 65,000 | —
Accruals, deferred income and other liabilities | 1,066 | 438 | 1,066 | 438
Income statement |  |  |  |
Interest income | 28,082 | 6,126 | 28,082 | 6,126
Interest expense | 1,617 | 230 | 1,617 | 230
Fee income | 55 | 112 | 55 | 112
Fee expense | 148 | 78 | 144 | 84
Net trading income | (886) | 9,006 | (886) | 9,006
Other income | 25 | 24 | 25 | 24
General and administrative expenses | 680 | 696 | 680 | 696

Balance and transactions with HSBC Bank plc
| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Assets |  |  |  |
Derivatives | 2,664 | 3,925 | 2,664 | 3,925
Loans and advances to banks | 2,353 | 53,322 | 1,133 | 51,494
Prepayments, accrued income and other assets | 502 | 189 | 409 | 189
Liabilities |  |  |  |
Derivatives | 446 | 1,587 | 446 | 1,587
Deposits by banks | 712 | 1,074 | 712 | 1,074
Borrowings from a group undertaking | — | 60,000 | — | 60,000
Subordinated liabilities | — | 62,000 | — | 62,000
Accruals, deferred income and other liabilities | 667 | 1,157 | 69 | 219
Income statement |  |  |  |
Interest income | 1,062 | 343 | 1,062 | 343
Interest expense | 5,600 | 2,048 | 5,600 | 2,048
Fee income | 378 | — | — | —
Fee expense | 32 | 2 | 32 | 2
Net trading income | (6) | 15,664 | (6) | 15,664
Other income | 98 | 22 | 98 | 22
General and administrative expenses | 922 | 485 | 363 | 41

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 177

Balances and transactions with other subsidiaries of HSBC Holdings plc
| Group | Bank
| 2023 | 2022 | 2023 | 2022
| €000 | €000 | €000 | €000
Assets |  |  |  |
Loans and advances to banks | 4,685 | 15,406 | 4,688 | 13,717
Prepayments, accrued income and other assets | 358 | 1,076 | 311 | 911
Liabilities |  |  |  |
Deposits by banks | 51 | 469 | 51 | 469
Customer accounts | 2,743 | 3,266 | 2,743 | 3,266
Accruals, deferred income and other liabilities | 17,532 | 10,468 | 16,351 | 8,116
Income statement |  |  |  |
Interest income | 249 | 566 | 249 | 566
Interest expense | 1 | 5 | 1 | 5
Fee income | 938 | 1,504 | — | —
Fee expense | 153 | 154 | 7 | 5
Net trading income | 4 | 2 | 4 | 2
Other income | 373 | 266 | 373 | 266
General and administrative expenses | 28,272 | 27,347 | 27,384 | 25,859

Balances and transactions with local group entities
| Bank
| 2023 | 2022
| €000 | €000
Assets |  |
Prepayments, accrued income and other assets | 1,399 | 1,087
Investment in subsidiaries | 30,859 | 30,859
Liabilities |  |
Customer accounts | 30,749 | 39,434
Income statement |  |
Fee income | 2,311 | 3,584
Net trading income | 12 | 14
Dividend income | 769 | 1,308

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.

49 | Effects of adoption of IFRS 17

On 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, and as required by the standard, applied the requirements
retrospectively with comparatives restated from the transition date, 1 January 2022. The tables below provide the transition restatement impact
on the local group’s consolidated statement of financial position as at 1 January 2022, as well as the income statement for the year ended 31
December 2022.
Further information about the effect of adoption of IFRS 17 is provided in Note 2 ‘Basis of preparation’ on page 75.

IFRS 17 transition impact on the Group consolidated statement of financial position at 1 January 2022
| Reported Group numbers | Removal of PVIF and IFRS 4 | IFRS 17 Restatement | Reclassif- ication | Restated Group numbers | Total movements
| €000 | €000 | €000 | €000 | €000 | €000
Assets |  |  |  |  |  |
Financial assets mandatorily measured at fair value through profit or loss | 767,808 | — | — | — | 767,808 | —
Loans and advances to banks | 619,273 | — | — | — | 619,273 | —
Loans and advances to customers | 3,196,725 | — | — | — | 3,196,725 | —
Financial investments | 845,735 | — | — | — | 845,735 | —
Intangible assets | 50,168 | (33,565) | — | — | 16,603 | (33,565)
Deferred tax assets | 29,119 | — | — | 767 | 29,886 | 767
Reinsurance contract assets | 77,972 | — | (77,707) | (202) | 63 | (77,909)
All other assets | 1,588,005 | — | 77 | 1,263 | 1,589,345 | 1,340
Total assets | 7,174,805 | (33,565) | (77,630) | 1,828 | 7,065,438 | (109,367)
Liabilities and equity |  |  |  |  |  |
Liabilities |  |  |  |  |  |
Insurance contract liabilities | 658,197 | — | (76,635) | 811 | 582,373 | (75,824)
Deferred tax liabilities | 15,005 | — | (12,123) | 767 | 3,649 | (11,356)
All other liabilities | 6,011,866 | — | — | 250 | 6,012,116 | 250
Total liabilities | 6,685,068 | — | (88,758) | 1,828 | 6,598,138 | (86,930)
Total equity | 489,737 | (33,565) | 11,128 | — | 467,300 | (22,437)
Total liabilities and equity | 7,174,805 | (33,565) | (77,630) | 1,828 | 7,065,438 | (109,367)

Notes on the financial statements

178 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Transition drivers
Removal of PVIF and IFRS 4 balances
The PVIF intangible asset of €33,565,000 previously reported under IFRS 4 within ‘Intangible assets’ arose from the upfront recognition of future
profits associated with in-force insurance contracts. The PVIF intangible asset is no longer reported following the transition to IFRS 17, as future
profits are deferred within the CSM. Other assets and insurance contract liabilities which were previously measured in terms of IFRS 4 have
been remeasured in accordance with IFRS 17.
IFRS 17 reinstatements
Recognition of the IFRS 17 fulfilment cash flows
The measurement of the insurance and reinsurance contract liabilities and assets under IFRS 17 are based on groups of insurance contracts and
include a liability or asset for fulfilling the insurance and reinsurance contracts, such as premiums, directly attributable expenses, insurance
benefits and claims including policyholder returns and the cost of guarantees. These are recorded within the fulfilment cash flow component of
the insurance and reinsurance contract liability or asset, together with the risk adjustment for non-financial risk.
Recognition of the IFRS 17 CSM
The CSM is a component of the insurance contract liability and represents the future unearned profit associated with insurance contracts which
will be released to the profit and loss over the expected coverage period. The reinsurance CSM can represent either a deferred cost (asset) or
gain (liability).
Tax effect
The removal of deferred tax liabilities primarily results from the removal of the associated PVIF intangible asset, and new deferred tax assets are
reported, where appropriate, on temporary differences between the new IFRS 17 accounting balances and their associated tax bases to the
extent that these are considered recoverable.
Transition impact - Equity
At transition, the local group’s total equity reduced by €22,437,000. The primary drivers of the change included: the removal of IFRS 4 based
balances including the PVIF intangible asset recognised under the group’s historical accounting convention and IFRS 4 based insurance assets
and liabilities; recognition of the contractual service margin under IFRS 17; and establishment of the remaining IFRS 17 assets and liabilities
including the best estimate of future cash flows and risk adjustment. These changes are also adjusted for the effect of tax.

IIFRS 17 transition impact on the Group consolidated income statement for the year ended 31 December 2022
| Reported Group numbers | Removal of PVIF and IFRS 4-based revenue | Effect of IFRS 17 | Restated Group numbers
| €000 | €000 | €000 | €000
Net interest income | 108,242 | — | — | 108,242
Net fee income | 22,054 | — | (400) | 21,654
Net insurance premium income | 50,691 | (50,691) | — | —
Insurance revenue | — | — | 15,565 | 15,565
Insurance service expense | — | — | (5,475) | (5,475)
Net expenses from reinsurance contracts | — | — | (4,812) | (4,812)
Insurance service result | — | — | 5,278 | 5,278
Net expense from assets and liabilities of insurance businesses, measured at fair value through profit or loss | (76,000) | — | 1,256 | (74,744)
Insurance finance income | — | — | 76,496 | 76,496
Net trading income | 7,689 | — | — | 7,689
Other operating income | 4,292 | (2,775) | (335) | 1,182
Total operating income | 116,968 | (53,466) | 82,295 | 145,797
Net insurance claims and benefits paid and movement in liabilities to policyholders | 33,677 | (33,677) | — | —
Net operating income before change in expected credit losses and other credit impairment charges | 150,645 | (87,143) | 82,295 | 145,797
Change in expected credit losses and other credit impairment charges | 9,561 | — | — | 9,561
Net operating income | 160,206 | (87,143) | 82,295 | 155,358
Employee compensation and benefits | (40,103) | — | 1,151 | (38,952)
General and administrative expenses | (54,698) | — | 2,034 | (52,664)
Depreciation of property, plant and equipment and right-of-use assets | (3,301) | — | — | (3,301)
Amortisation and impairment of intangible assets | (4,853) | — | — | (4,853)
Total operating expenses | (102,955) | — | 3,185 | (99,770)
Profit before tax | 57,251 | (87,143) | 85,480 | 55,588
Tax charge | (19,680) | — | 274 | (19,406)
Profit for the period | 37,571 | (87,143) | 85,754 | 36,182

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 179

Transition drivers for the income statement
Removal of IFRS 4-based revenue items and introduction of IFRS 17 - income statement line items
As a result of the removal of the PVIF intangible asset, the associated revenue o f €2,775,000 that was reported in 2022 within Other operating
income is no longer reported under IFRS 17. This includes the removal of the value of new business and changes to in-force book PVIF from
valuation adjustments and experience variances.
On the implementation of IFRS 17 new income statement line items associated with insurance contract accounting were introduced.
Consequently, the previously reported IFRS 4 line items ‘Net insurance premium income’, ‘Net insurance claims and benefits paid and
movement in liabilities to policyholders’ were also removed. For further information, please refer to Note 2(a).

50 | Fiduciary activities

The local group provides fiduciary 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. Assets held in a fiduciary capacity 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 2023, total assets held by the local group on behalf of customers amounted to €463,983,000 (2022: €484,773,000).

51 | 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 €2,963,000 (2022: €3,211,000) as presented under ‘Fee income’ in profit or loss.
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.

| 2023 | 2022
| €000 | €000
Carrying amount of units in HSBC managed investment funds - classified as financial investments measured at fair value through profit or loss | 90,166 | 82,543
Total assets of HSBC managed funds | 312,342 | 301,919

The maximum exposure to loss is equivalent to the carrying amount of the assets held at the reporting date.

52 | 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.
As had been announced by the Bank in accordance with the company announcement dated 10 December 2021, the transaction occurred in the
context of a corporate restructuring by the HSBC Group to comply with the obligation under Article 21(b) of Directive (EU) 2019/878 of the
European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding
companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures (CRD V) for
non-EU headquartered banking groups like the HSBC Group to have an intermediate parent undertaking (‘EU IPU’) in the EU by 30 December
2023. As a result, all of HSBC’s relevant EU banking subsidiaries, including the Bank, are now owned by the HSBC Group through HSBC
Continental Europe (‘HBCE’) as the EU intermediate parent undertaking. The transaction between HSBC Europe B.V. and HBCE was completed
on 30 November 2022. The transaction did not involve any change in the day-to-day business of the bank and its subsidiaries.
Currently, the ultimate parent company of HSBC Bank Malta p.l.c. is HSBC Holdings plc and the immediate parent company is HSBC
Continental Europe (‘HBCE’), which are incorporated and registered in the United Kingdom and France respectively. The registered address of
HSBC Holdings plc is 8, Canada Square, London E14 5HQ, United Kingdom and the registered address of HBCE is 38, avenue Kléber – 75116
Paris, France. Copies of the HSBC Holdings plc Annual Report and Accounts may be obtained from its registered office or viewed on
www.hsbc.com.

53 | 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.
Notes on the financial statements

180 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

54 | Critical 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;
– selecting economic forecasts, including determining whether sufficient and appropriately weighted economic forecasts are incorporated to
calculate unbiased expected losses; and
– making management judgemental adjustments to account for late breaking events, model and data limitations and deficiencies, and expert
credit judgements.
In particular, the measurement of the expected credit loss allowances 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 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 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)(iii). 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.
The level of estimation uncertainty and judgement has remained elevated since 31 December 2022 as a result of the economic effects of the
significant inflationary pressures and the ensuing elevated interest rate environment being currently experienced. The latter is the direct
consequence of a response by the European Central Bank (‘ECB’) as well as other national central banks across Europe from a monetary policy
perspective, with announced increases in interest rates designed to curb the spiralling effect of inflationary pressures. In addition, the level of
macroeconomic uncertainty is exacerbated by global geopolitical conflicts, particularly the ongoing military conflict between Russia and Ukraine
as well as the escalation of the military conflict between Israel and Hamas in the Middle East. In this respect, the level of estimation uncertainty
and judgement has remained high during 2023.
Therefore, the underlying models and their calibration, including how they react to forward-looking economic conditions, remain highly
subjective.
Significant judgement is required in establishing the number, severity and relative weightings of forward-looking economic scenarios given the
rapidly changing economic conditions and wide economic forecasts due to the potential impacts of ongoing inflationary pressures and monetary
policy changes, geopolitical developments in respect of the military conflict between Russia and Ukraine and between Israel and Hamas, and
the effect of the implementation and eventual unwinding of government support measures designed to alleviate adverse economic impacts,
including subsidies in respect of energy prices and foodstuffs.
Significant judgement is therefore also required in making assumptions about the effects of inflation, interest rates, economic growth, and
supply chain disruptions. As alluded to earlier, there is an absence of an observable historical trend that can accurately represent the severity
and speed of such forecasts, which represent a high degree of estimation uncertainty, particularly in assessing downside scenarios. Such
complexities have never been modelled.
Consequently, management applied a higher level of expert judgement in order to assess the impact of the current geopolitical and
macroeconomic environment on the local group’s level of defaults, including evaluating the impact of monetary policy and government support
schemes, and the unwinding of such measures, on both the incidence of default events and the severity of losses as described below.
These model limitations have been addressed through the modelling of an additional downside scenario – the Downside 2 scenario – to capture
tail risk and the recalibration of probability weights based on expert judgement, as described in further detail in Note 4(b)(iii) to the financial
statements.
Specifically in respect of the mortgage portfolio, the selection of the macroeconomic variables used to determine forward-looking point-in-time
PDs as well as the calibration of the impact of changes in macroeconomic variables on modelled ECL remain key assumptions. The ECL model
for mortgages takes into consideration two macroeconomic variables, namely unemployment and real GDP growth, with relative 80:20 weights
applied respectively. In this respect, the determination of the relative weights requires a significant level of expert judgement to be applied by
management.
The identification of customers experiencing a significant increase in credit risk or credit impairment in the context of the elevated level of
uncertainty is also highly judgemental due to limitations in available credit information on customers. This is particularly relevant in those
instances where customers are significantly dependent on government support measures, such as subsidies in respect of energy prices and
foodstuffs, to address short-term liquidity issues. In response to such limitations, a management overlay is estimated in respect of the
mortgage portfolio in order to estimate the potential impact of elevated inflation and interest rates on borrower affordability, which might result
in the delayed identification of borrowers experiencing a significant increase in credit risk, on the calculation of credit loss allowances as at
31 December 2023. Amongst other factors, the calculation of the management overlay takes into consideration the assumed level of net
disposable income and salaries at borrower level, adjusted by reference to assumed increases in inflation and interest rates in 2023.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 181

Judgement was 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 current inflationary pressures and high interest rate environment, the Bank
assesses and individually rates those individually significant borrowers within wholesale sub-portfolios deemed mostly impacted by these
macroeconomic pressures 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.
In view of the above, management considered the sensitivity of the ECL outcome to the macroeconomic 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.
In addition, in view of the expert judgement required to determine the relative weights applied to the macroeconomic variables used in the ECL
calculation for the mortgage portfolio, management also considered the sensitivity of the ECL outcome to changes in the relative weights. The
sensitivity analysis is presented in Note 4(b)(iii) within the section entitled ‘Economic scenarios sensitivity analysis of ECL estimates’.
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
current inflationary pressures and elevated interest rate environment, 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 these macroeconomic pressures will
not be fully known until market conditions stabilise.
(b)Valuation of insurance contract liabilities
Transition classification
The standard is applied retrospectively using a fully retrospective approach (‘FRA’) as if it had always existed unless it is impracticable to do so,
in which case either a modified retrospective approach (‘MRA‘) or a fair value approach (‘FVA’) can be used. Impracticability assessments were
performed based on the requirements of IFRS 17 and took in consideration the availability of data and systems and the requirement not to apply
hindsight within the measurement.
Following the completion of impracticability assessments, the local group applied the following approaches for both insurance and reinsurance
contracts:
– FRA is applied to new business issued from 2020 onwards. FRA contributes to 20% of the CSM at the transition date.
– The FVA is applied for all other business issued when FRA is not practicable to be applied. The FVA approach contributes to 80% of the CSM
balance at the transition date.
– FVA is applied to reinsurance.
The local group has determined that it would be impracticable to apply the full retrospective approach where any of the following conditions
existed:
– The effects of the full retrospective application were not determinable, for example:
– Some reasonable and supportable information about actual historical cash flows might have been available from the local group’s
systems, but in many cases such information was only available at higher levels or different levels of aggregation compared to the groups
as required under IFRS 17. This lack of information made it impracticable to accurately calculate the fulfilment cash flows (‘FCF’) on a
retrospective basis and to segregate groups based on profitability.
– The information necessary to estimate the effect of contracts derecognised before the transition date on allocation of the CSM between
past and future periods on the transition date was not available in many cases.
– The full retrospective application required assumptions that would have been made in an earlier period, for example:
– For contracts with direct participation features, the insurance subsidiary’s expectations regarding the policyholder’s share of underlying
assets at contract inception would not have been possible to recreate without the use of hindsight;
– Difficulties in retrieving relevant reliable information existed where assumptions developed at the date of initial recognition were not on an
IFRS 17 basis (such as discount rates, risk adjustment for non-financial risk or expenses);
– Changes in assumptions have not been historically documented on an ongoing basis;
– The older the in force contracts (such as term life products), the more challenging it would have been to retrieve data from the past on
assumptions.
– The full retrospective application required significant estimates of amounts, and it was impossible to distinguish objectively between
information about those estimates that provided evidence of circumstances that (i) existed on the date at which those amounts were to be
recognised, measured or disclosed; and (ii) would have been available when the consolidated financial statements for that prior period were
authorised for issue, and other information, for example:
– The local group had limited or no information required for the allocation of acquisition cash flows to respective groups of insurance
contracts issued or expected to be issued, and other overhead expenses to respective groups under IFRS 17. Systems have not been
tracking or allocating acquisition costs, because previous accounting policies did not require this. In addition, the allocation of applicable
overheads to groups of contracts required information that has not historically been tracked/recorded.
– The local group has not historically been accumulating information about the changes in estimates that would have been recognised in
profit or loss for each accounting period, because they did not relate to future service, and the extent to which changes in the FCF would
have been allocated to the loss component.
Notes on the financial statements

182 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Determination of the fair value of insurance contract liabilities on transition
Under the FVA approach as required by IFRS 17, the valuation of insurance liabilities on transition is based on the requirements of IFRS 13 ‘Fair
Value Measurement’. This requires consideration of 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 (an exit price). Under the FVA the CSM is calculated as the difference
between what a market participant would demand for assuming the unexpired risk associated with insurance contracts including required profit,
and the future cash flows committed to under the contract (the fulfilment cash flows - determined using IFRS 17 principles). There is significant
judgement involved in determining an appropriate fair value, as there is lack of observable data for actual transactions for closed book insurance
businesses and a range of possible modelling approaches. In determining the fair value the local group considered the estimated profit margin
that a market participant would demand in return for assuming the insurance liabilities, and the discount rate that would be applied within the
IFRS 13 calculation.
The approach for setting these included the following:
– The discount rate was derived with an allowance for an illiquidity premium that takes into account the level of ‘matching’ between the local
group’s assets and related liabilities.
– A profit margin was determined considering the level of capital that a market participant would be required to hold under Solvency II
regulations and the associated cost of capital. These assumptions were set taking into account the assumptions that a hypothetical market
participant would consider.
Coverage units
The local group’s approach to the determination of coverage units is set out in Note 3(i). Significant judgement was involved in the
determination of the approach that most faithfully represents the nature of the local group’s business and the benefits that are ascribed to the
policyholder over the duration of insurance contracts, as the standard does not specify a required basis for determination of coverage units. This
judgement is most significant for investment services, which constitute the most material element of service for most of the local group’s
contracts. The local group determined that the coverage unit basis that best reflects the provision of investment services is the availability of the
facility over time. The quantity of benefit selected is therefore a constant measure.
Discount rates
The discount rate methodology is a fundamental assumption underpinning the IFRS 17 reporting. While IFRS 17 does not specify the actual
methodology of setting the discount rate, it requires that the methodology should be market consistent, set based on the liability characteristics,
and that only financial risk should be allowed for in the discount rate. The local group has elected to apply a bottom up approach where risk-free
rates are adjusted for an illiquidity premium as set out in Note 3(i). In setting the risk-free rate the local group uses a market observable approach
where either swaps or government bond yields are used as the reference instruments. This selection depends on factors such as information
availability, term structure, and currency. In setting the illiquidity premium the local group determines a market consistent spread of a reference
portfolio, applied when the illiquidity of the cash flows are clearly identifiable. Therefore, the illiquidity premium varies by the level at which
assets are managed and the illiquidity characteristics of the liabilities.
The table below shows a comparison of the 10 and 20 year risk free rates used within the valuation of the liabilities:

| 2023 | 2022
Rate 10Y (%) | 2.39 | 3.09
Rate 20Y (%) | 2.41 | 2.76

Expenses
IFRS 17 requires the determination of whether cash flows are directly attributable to the acquisition or fulfilment of insurance contracts.
Insurance acquisition cash flows are included in the measurement of a group of insurance contracts only if they are directly attributable to the
individual contracts in a group, or to the group itself, or the portfolio of insurance contracts to which the group belongs. When estimating
fulfilment cash flows, the local group also allocates fixed and variable overheads cash flows directly attributable to the fulfilment of insurance
contracts. Judgement is involved in identifying and allocating costs and this determination has been informed by time study assessments which
consider factors such as the allocation of frontline staff costs related to distribution including salaries, commissions and bonuses, and associated
overhead allocations. For further information in relation to expenses which are directly attributable to the acquisition or fulfilment of insurance
contracts please refer to Note 17.
Estimates of future cash flows to fulfil insurance contracts
Included in the measurement of each group of contracts within the scope of IFRS 17 are all of the future cash flows within the boundary of each
group of contracts. The estimates of these future cash flows are based on probability-weighted expected future cash flows. The local group
estimates which cash flows are expected and the probability that they will occur as at the measurement date. In making these expectations, the
local group uses information about past events, current conditions and forecasts of future conditions. The local group’s estimate of future cash
flows is the mean of a range of scenarios that reflect the full range of possible outcomes. Each scenario specifies the amount, timing and
probability of cash flows. The probability-weighted average of the future cash flows is calculated using a deterministic scenario representing the
probability-weighted mean of a range of scenarios.
Where estimates of expenses-related cash flows are determined at the portfolio level or higher, they are allocated to groups of contracts on a
systematic basis such as activity-based costing method. The local group has determined that this method results in a systematic and rational
allocation. Similar methods are consistently applied to allocate expenses of a similar nature. Expenses of an administrative policy maintenance
nature are allocated to groups of contracts based on the number of contracts in force within groups.
Acquisition cash flows are typically allocated to groups of contracts based on gross premiums written. This includes an allocation of acquisition
cash flows among existing as well as future groups of insurance contracts issued.
Claims settlement-related expenses are allocated based on the number of claims expected for all groups, where such expenses are allocated
based on claims costs.
For the Life Risk and Savings contracts, uncertainty in the estimation of future claims and benefit payments and premium receipts arises
primarily from the unpredictability of long-term changes in the mortality rates, the lapse rate, and uncertainties regarding future inflation rates
and expenses growth.

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 183

For the participating contracts, uncertainty in the estimation of future claims and benefit payments arises primarily from the variability in
policyholder behaviour. The guarantee on embedded investment contracts with DPF was measured using a closed form model. The guarantee
was measured using a full range of scenarios representing possible future interest rate environments.
Mortality
The estimation of future benefit payments and premiums arising from long-term insurance contracts is the local group’s most critical accounting
estimate. 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. A base mortality table is selected which is most appropriate for each type of contract. The
mortality rates reflected in the table below are adjusted by the expected mortality based on a statistical investigation into the local group’s
mortality experience.
The estimated number of deaths determines the value of future benefit payments. The main source of uncertainty is that epidemics 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. The local group is also exposed to the volatility of the
yield curve. New estimates are made each subsequent year to reflect the current long-term outlook.
For the sensitivities to mortality and/or morbidity rates please refer to Note 4(f).
The principal assumptions used to value the life reserves of the main classes of business were as follows:

At 31 Dec 2023 |  |
Class of business | Renewal expense (p.a.) | Mortality
Life direct participating and investment DPF | €34.8 | 85% TM08 / 85% TF08
Life other | €34.8 | 85% TM08 / 85% TF08
At 31 Dec 2022 |  |
Class of business | Renewal expense (p.a.) | Mortality
Life direct participating and investment DPF | €23.7 | 85% TM08 / 85% TF08
Life other | €23.7 | 85% TM08 / 85% TF08

Expenses and inflation
The local group estimates expected maintenance expenses by considering the current level of expenses, expected reductions in certain
expense categories, expected inflation and policy values. The local group assesses and holds a provision for potential future shortfalls for the
period that per-policy costs are forecast to be higher than current assumed income. 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 amounting to
€4.1 million (2022: €2.7 million).
Expense inflation is based on the French inflation swap curve modified to estimate future inflation for Malta. The local group’s selected inflation
assumptions consider the current macroeconomic environment and reflect expectations of ‘excess inflation’ over the coming three calendar
years. Expense inflation is calculated as a blend of wage inflation and price inflation, with the latter based on an adjusted French inflation curve.
The assumed wage inflation from the 4th projection year 2027 onwards is fixed at 2% p.a. with higher p.a. rates taken in the intervening period.
This assumption is informed by the Central Bank of Malta’s inflation forecast published by the end of 2023 (2.9% as from 2024 onwards) and a
commitment by the local group to control salary related cost. This results in a term dependent expense inflation assumption ranging from 1.9%
p.a. to 2.2% p.a. (2022: 2.5% p.a. to 2.4% p.a.).
Sensitivities of key assumptions are disclosed in Note 4(f).
(c)Valuation of financial instruments
The local group’s financial instruments measured at fair value comprise Treasury Bills, derivative instruments, financial assets mandatorily
measured at fair value through profit or loss relating to the insurance business, as well as a portfolio of debt and equity instruments classified
within ‘Financial investments’ measured at fair value through other comprehensive income.
The local group applies a range of valuation techniques, dependent on instrument type and available market data, predominantly based upon
discounted cash flow analyses. The key assumptions and valuation techniques applied in the estimation of the fair value of the above mentioned
financial instruments are described in Note 5.
(d)Measurement of post employment and other 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. The local group’s liabilities in respect of these present obligations arising from the
collective agreement are 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, which 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.
The calculation of the defined benefit pension obligation includes assumptions in respect of the discount rate, inflation rate, expected future
salary levels, experience of employee departures and mortality rates. In this respect, a range of assumptions could be applied, and different
assumptions could significantly alter the defined benefit obligation and the amounts recognised in profit or loss or other comprehensive income.
Management determines these assumptions in consultation with the independent actuaries.
The key assumptions used in calculating the defined benefit pension obligation for the principal plan are described in Note 39.
Notes on the financial statements

184 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Five-year comparison: Income statements and statements of comprehensive income

Group Income Statements

| 2023 | 2022 | 2021 | 2020 | 2019
| €000 | €000 | €000 | €000 | €000
Interest receivable and similar income | 213,876 | 116,639 | 105,710 | 113,598 | 120,573
Interest expense | (18,064) | (8,397) | (7,952) | (7,696) | (10,462)
Net interest income | 195,812 | 108,242 | 97,758 | 105,902 | 110,111
Net non-interest income | 35,858 | 37,555 | 33,535 | 27,521 | 41,672
Change in expected credit losses and other credit impairment charges | 4,580 | 9,561 | 995 | (25,589) | (389)
Operating expenses | (102,396) | (99,770) | (105,406) | (97,391) | (120,685)
Profit before tax | 133,854 | 55,588 | 26,882 | 10,443 | 30,709
Tax expense | (47,098) | (19,406) | (9,127) | (2,871) | (10,541)
Profit for the year | 86,756 | 36,182 | 17,755 | 7,572 | 20,168
Earnings per share | €0.24 | €0.10 | €0.05 | €0.02 | €0.06

Group Statements of Comprehensive Income

| 2023 | 2022 | 2021 | 2020 | 2019
| €000 | €000 | €000 | €000 | €000
Profit for the year | 86,756 | 36,182 | 17,755 | 7,572 | 20,168
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: | 8,697 | (23,177) | (6,095) | 753 | 311
– fair value (losses)/gains | 13,380 | (35,657) | (9,377) | 1,159 | 478
– income taxes | (4,683) | 12,480 | 3,282 | (406) | (167)
Items that will not be reclassified subsequently to profit or loss: |  |  |  |  |
Properties: | 1,643 | 166 | 2,150 | 304 | (475)
– surplus/(loss) arising on revaluation | 1,826 | 185 | 2,389 | 338 | (528)
– income taxes | (183) | (19) | (239) | (34) | 53
Post employment benefit obligations: | (14) | 893 | 292 | (446) | (619)
– remeasurement of post employment benefit obligations | (22) | 1,374 | 450 | (686) | (952)
– income taxes | 8 | (481) | (158) | 240 | 333
Equity instruments designated at fair value through other comprehensive income: | 4 | 1 | 1 | 2 | —
– fair value gains | 6 | 2 | 2 | 3 | —
– income taxes | (2) | (1) | (1) | (1) | —
Other comprehensive income, net of tax | 10,330 | (22,117) | (3,652) | 613 | (783)
Total comprehensive income | 97,086 | 14,065 | 14,103 | 8,185 | 19,385

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 185

Five-year comparison: Statements of financial position

| 2023 | 2022 | 2021 | 2020 | 2019
| €000 | €000 | €000 | €000 | €000
Assets |  |  |  |  |
Balances with Central Bank of Malta, Treasury Bills and cash | 1,676,639 | 1,583,348 | 1,495,135 | 995,627 | 585,176
Items in course of collection from other banks | 8,427 | 6,921 | 4,453 | 4,959 | 3,436
Financial assets mandatorily measured at fair value through profit or loss | 693,024 | 660,446 | 767,808 | 733,670 | 754,020
Derivatives | 13,577 | 25,745 | 4,640 | 6,574 | 5,320
Loans and advances to banks | 720,583 | 732,507 | 619,273 | 589,259 | 676,031
Loans and advances to customers | 3,083,843 | 3,175,167 | 3,196,725 | 3,264,664 | 3,257,433
Financial investments | 1,315,859 | 1,004,770 | 845,735 | 877,485 | 943,603
Prepayments, accrued income and other assets | 33,699 | 34,092 | 28,683 | 35,928 | 37,691
Current tax assets | 1,153 | 3,496 | 3,669 | 1,813 | 1,719
Reinsurance contract assets | 2,557 | 2,959 | 63 | 80,083 | 78,945
Non-current assets held for sale | 5,816 | 5,173 | 6,673 | 8,919 | 8,422
Investment property | — | — | 1,600 | 1,600 | 9,788
Right-of-use assets | 2,284 | 2,459 | 2,569 | 4,200 | 4,685
Property, plant and equipment | 51,694 | 44,627 | 41,923 | 44,206 | 47,403
Intangible assets | 20,762 | 19,169 | 16,603 | 54,342 | 61,518
Deferred tax assets | 31,002 | 35,767 | 29,886 | 27,130 | 22,427
Total assets | 7,660,919 | 7,336,646 | 7,065,438 | 6,730,459 | 6,497,617
Liabilities |  |  |  |  |
Deposits by banks | 5,117 | 2,861 | 1,397 | 3,754 | 840
Customer accounts | 6,141,520 | 5,970,958 | 5,621,195 | 5,272,961 | 4,976,580
Items in the course of transmission to other banks | 18,359 | 27,397 | 21,573 | 21,372 | 23,473
Liabilities under investment contracts | 156,958 | 162,123 | 185,137 | 170,865 | 183,706
Derivatives | 5,748 | 10,252 | 4,592 | 6,551 | 5,190
Accruals, deferred income and other liabilities | 55,055 | 42,550 | 34,471 | 27,833 | 59,189
Current tax liabilities | 35,190 | 2,104 | 499 | 88 | 2,489
Insurance contract liabilities | 519,363 | 499,507 | 582,373 | 648,028 | 658,470
Provisions | 21,849 | 20,080 | 21,252 | 21,031 | 33,271
Deferred tax liabilities | 3,727 | 3,569 | 3,649 | 17,562 | 22,443
Borrowings from a group undertaking | 90,000 | 60,000 | 60,000 | — | —
Subordinated liabilities | 65,000 | 62,000 | 62,000 | 62,000 | 62,000
Total liabilities | 7,117,886 | 6,863,401 | 6,598,138 | 6,252,045 | 6,027,651
Total equity | 543,033 | 473,245 | 467,300 | 478,414 | 469,966
Total liabilities and equity | 7,660,919 | 7,336,646 | 7,065,438 | 6,730,459 | 6,497,617
Memorandum items |  |  |  |  |
Guarantees and other contingent liabilities | 200,495 | 182,250 | 164,388 | 174,355 | 181,491
Commitments | 838,659 | 842,320 | 967,739 | 1,071,319 | 1,075,524

From 1 January 2023, the local group adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. The comparative information
in respect of the financial year ended 31 December 2022 and 31 December 2021 has been restated accordingly.
Five-year comparison

186 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

Five-year comparison: Statements of cash flows

| 2023 | 2022 | 2021 | 2020 | 2019
| €000 | €000 | €000 | €000 | €000
Net cash from/(used in) operating activities | 165,291 | 618,670 | 745,603 | 158,480 | (204,056)
Cash flows from investing activities |  |  |  |  |
Dividends received | — | — | — | 33 | 29
Interest received from financial investments | 11,097 | 6,142 | 11,897 | 14,746 | 16,229
Purchase of financial investments | (568,904) | (464,793) | (221,697) | (214,787) | (315,277)
Proceeds from sale and maturity of financial investments | 283,058 | 255,296 | 249,667 | 263,519 | 270,965
Purchase of property, plant and equipment, investment property and intangible assets | (16,055) | (12,808) | (8,508) | (7,677) | (6,980)
Proceeds on sale of property, plant and equipment, investment property and intangible assets | — | 1,600 | 56 | 7,903 | 1,865
Net cash flows from/(used in) investing activities | (290,804) | (214,563) | 31,415 | 63,737 | (33,169)
Cash flows from financing activities |  |  |  |  |
Dividends paid | (27,190) | (8,010) | (2,717) | — | (8,197)
Proceeds from borrowings from a group undertaking | 30,000 |  | 60,000 | — | —
Issue of subordinated liabilities | 65,000 | — | — | — | —
Repayment of subordinated liabilities | (62,000) | — | — | — | —
Net cash from/(used in) financing activities | 5,810 | (8,010) | 57,283 | — | (8,197)
Net increase/(decrease) in cash and cash equivalents | (119,703) | 396,097 | 834,301 | 222,217 | (245,422)

Five-year comparison: Accounting ratios

| 2023 | 2022 | 2021 | 2020 | 2019
| % | % | % | % | %
Net operating income before loan impairment charges to total assets | 3.0 | 2.0 | 1.9 | 2.0 | 2.3
Operating expenses to total assets | 1.3 | 1.4 | 1.5 | 1.4 | 1.9
Cost efficiency ratio | 44.2 | 68.4 | 80.3 | 73.0 | 80.2
Profit before tax to total assets | 1.7 | 0.8 | 0.4 | 0.2 | 0.5
Profit before tax to equity | 24.6 | 11.7 | 5.8 | 2.2 | 6.5
Profit after tax to equity | 17.1 | 7.7 | 3.8 | 1.6 | 4.3
| 2023 | 2022 | 2021 | 2020 | 2019
Shares in issue (millions) | 360.3 | 360.3 | 360.3 | 360.3 | 360.3
Net assets per 30 cent share (euro) | 1.5 | 1.3 | 1.3 | 1.3 | 1.3
Earnings per 30 cent share (euro) | 0.24 | 0.10 | 0.05 | 0.02 | 0.06
Dividend per 30 cent share (euro) |  |  |  |  |
– gross | 0.15 | 0.06 | 0.03 | 0.01 | 0.02
– net | 0.10 | 0.04 | 0.02 | 0.01 | 0.01
Dividend cover | 2.5 | 2.8 | 2.2 | 2.8 | 5.1

HSBC Bank Malta p.l.c. Annual Report and Accounts 2023 | 187

Branches and offices

Malta offices
Registered Office/Head Office
116 Archbishop Street, Valletta VLT 1444
Tel: 2380 2380
Wealth and Personal Banking
80 Mill Street, Qormi QRM 3101
Tel: 2380 2380
Premier Centre
Wealth Management Office
80 Mill Street, Qormi QRM 3101
Tel: 2148 9100
Commercial Banking
Business Banking Centre
Triq il-Kbira, Zebbug
Tel: 2380 8000
International Banking Centre
High Street, Sliema SLM 1549
Tel: 2380 2600
Trade Services
80 Mill Street, Qormi QRM 3101
Tel: 2380 1828
Operations Centre
80 Mill Street, Qormi QRM 3101
Tel: 2380 2380
Card Operations
Operations Centre
80 Mill Street, Qormi QRM 3101
Tel: 2380 2380
Contact Centre
Operations Centre
80 Mill Street, Qormi QRM 3101
Tel: 2380 2380
Inheritance Unit
80 Mill Street, Qormi QRM 3101
Tel: 2380 3360/1/2/3/4
Legal Office
32 Merchants Street, Valletta VLT 1173
Tel: 2380 2411
Contracts Centre
32 Merchants Street, Valletta VLT 1173
Tel: 2380 3382
Branches
Birkirkara
1 Naxxar Road BKR 9049
Tel: 2380 2380
Gzira
196 The Strand GZR 1023
Tel: 2380 2380
Mosta
61/63 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
Airways House, 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
36/38/40 Main 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
80 Mill Street Qormi QRM 3101
Tel: 2380 5128
HSBC Life Assurance (Malta) Ltd
80 Mill Street Qormi QRM 3101
Tel: 2380 8699
Branches and offices

188 | HSBC Bank Malta p.l.c. Annual Report and Accounts 2023

© Copyright HSBC Bank Malta p.l.c. 2023 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank Malta p.l.c. Published by HSBC Bank Malta p.l.c., Valletta. Cover designed by Superunion (formerly Addison Group), London; text pages designed by Group Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, Hong Kong, and Global Finance, HSBC Holdings plc, London. ISSN 1811-7570 ISBN 978 -99932-12-23-2
Photography Pages 2 and 5: Jean-Marc Zerafa Pages 3,4 (top), 7 and 13: Andrew Gauci Attard Page 4 (bottom): Malta Trust Foundation Page 10: Rene Rossignaud Page 12: Claire Farrugia

HSBC Bank Malta p.l.c. 116 Archbishop Street Valletta VLT 1444 Malta Telephone: 356 2380 2380 www.hsbc.com.mt

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 Consolidated financial statements and the Parent Company (“the bank”) financial statements (the “financial statements”) of HSBC Bank Malta p.l.c. give a true and fair view of the Consolidated and the Parent Company’s financial position as at 31 December 2023, and of their 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 2023;

· the Consolidated and Parent Company statements of financial position as at 31 December 2023;

· 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, comprising material accounting policy information 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 bank and its subsidiaries 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 2023 to 31 December 2023, are disclosed in note [17] to the financial statements.

Our audit approach

#####

##### Overview

| · Overall group materiality: €4.1 million, which represents approximately 5% of the two-year average profit before tax adjusted for non-recurring items.
· The group audit engagement team carried out a full scope audit on the bank. The financial statements of HSBC Life Assurance (Malta) Ltd were audited by a component auditor within the same office as the group audit engagement team. HSBC Global Asset Management (Malta) Limited was deemed immaterial.
· Credit loss allowances in respect of loans and advances to customers · Implementation of IFRS 17: Transition methodology, judgements and related estimates · Valuation of insurance contract liabilities

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 | €4,077,000
How we determined it | Approximately 5% of the two-year average 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. Average profit before tax over the past two financial years was chosen due to the significant increase in net interest income experienced during the financial year ended 31 December 2023 as a result of the increasing interest rate environment. We considered the two-year average profit before tax to be more reflective of the financial position and performance of the local group. We chose 5% which is within the range of quantitative materiality thresholds that we consider acceptable.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €203,000 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 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. In general, the bank 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 bank 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 bank’s portfolios. ECL calculation for Wholesale exposures 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 bank’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. Staging is determined on the basis of both quantitative criteria and qualitative criteria. In respect of the former, for the Wholesale portfolio, the bank’s ECL model captures Significant Increase in Credit Risk (‘SICR’) events at an individual borrower level through a quantitative comparison of changes in PiT PDs at reporting date with the equivalent estimation at origination date. In respect of the latter, a Customer Risk Rating (‘CRR’) is assigned at individual borrower level on the basis of a qualitative credit risk assessment performed at least annually to assess the default risk by reference to a defined set of criteria, with pre-established notch deteriorations in CRR grades representing a SICR event. The application of the SICR criteria used by management therefore involves a significant level of judgement. Due to the macroeconomic uncertainties being experienced, the bank performed an assessment in order to identify borrowers whose financial performance is deemed to be particularly susceptible to the potential impact of the current inflationary and elevated interest rate environment in order to assess whether a SICR event has occurred. 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. ECL calculation for Retail exposures 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, which inherently require a significant level of judgement to be applied by management in the determination of key assumptions and calibration of key model parameters. 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, as well as the status of the perfection of collateral and the vintage years in default. 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 are based on the bank’s recovery history. Staging in respect of Retail portfolios is determined at segment level in view of the homogeneity in nature and relatively low value of retail exposures. Segmentation is determined on the basis of the relevant identified credit risk characteristics for each portfolio. Exposures classified within the Mortgage portfolio are segmented by reference to delinquency status, past delinquency in the previous 12 months, as well as a behavioural score in case of exposures with no history of delinquency throughout the previous 12 months. Segmentation in respect of the other retail portfolios is based on current delinquency status. A SICR threshold is determined in respect of each retail portfolio by reference to the average PD twelve months prior to exposures falling more than 30 days past due. In this respect, PDs are estimated in respect of each segment and segments with a PD in excess of the SICR threshold are classified as stage 2 exposures. The local impact of the inflationary pressures being currently experienced in the local economy and the ensuing elevated interest rate environment 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. In this respect, these inflationary pressures might be reasonably expected to impact the affordability of repayments within the Mortgage portfolio due to the rapid rise in the cost of living being experienced locally together with the potential resultant impact on market interest rates. Such inflationary pressures are deemed to be partially mitigated by government support measures, including subsidies on energy prices and foodstuffs. For the purposes of avoiding the cliff edge effect on ECLs upon the unwinding of government support schemes, as well as to capture risks which are not fully captured by the selected macroeconomic variables applied in the ECL model, an overlay was applied by the bank determined on the basis of quantitative assumptions in respect of borrower affordability and levels of net disposable income to enable the identification of SICR or Unlikeliness-to-Pay (‘UTP’) events as early as possible. Forward-looking scenarios applied in the ECL calculation of loans and advances to customers 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. Specifically, the bank applies four macroeconomic scenarios to capture the current economic environment, reflecting management’s view of the range of potential outcomes. For Retail portfolios, the impact of macroeconomic scenarios on PDs is modelled at a portfolio level. In contrast, no impact is modelled on LGDs. The macroeconomic variables applied to retail exposures are specific to Malta. For Mortgages, these comprise unemployment, real Gross Domestic Product (‘GDP’) growth, and the House Price Index (‘HPI’), whereas unsecured Retail portfolios are linked to either unemployment or real GDP growth. The forward-looking PDs and LGDs applied in respect of non-credit impaired Wholesale exposures are modelled by reference to a proxy country’s macroeconomic paths, shifted by a scalar to reflect the difference between the proxy country’s and local sensitivities to economic shocks. The most suitable proxy country is determined using a methodology designed to compare proxy sites’ principal component macroeconomic variables to local variables. The selected macroeconomic variables applied in the ECL calculation of non-credit impaired Wholesale exposures comprise the proxy country’s real GDP growth rate, unemployment rate, consumer price index, short-term interest rate, and HPI. For credit impaired Wholesale exposures, LGD estimates take into account independent recovery valuations provided by external consultants, or internal forecasts corresponding to anticipated economic conditions and individual company conditions. The current inflationary economic environment and the ensuing macroeconomic uncertainty induced by the general increase in interest rates, together with geopolitical uncertainties driven by the ongoing Russia-Ukraine conflict and the escalation of the Middle East conflict towards the end of 2023, have significantly impacted macroeconomic factors such as GDP, unemployment, the consumer price index and interest rates, 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. In this respect, the selection of the macroeconomic variables applied to modelled PDs as well as the methodology used to calibrate the sensitivity of PDs to changes in macroeconomic conditions require a significant level of expert judgement. 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. The bank’s application of the IFRS 9 impairment requirements is deemed to be an area of focus 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; • Measurements of individually assessed provisions including the assessment of multiple scenarios; and • The measurement and application of post-model adjustments designed to capture risks not captured by the model. 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 25; and • Critical estimates and judgements: Note 54(a). | During our audit of the financial statements for the year ended 31 December 2023, we continued to focus on the key drivers of the estimation of ECL and assessed the continuing appropriateness of management assumptions and key parameters. Discussions with the Audit Committee included: · Inputs and assumptions within the bank’s ECL models, for which we provided updates on the results of our testing procedures; · the application of forward economic guidance, particularly in the context of the estimated impact of the macroeconomic challenges driven by the global inflationary pressures and the ensuing elevated interest rate environment, together with geopolitical uncertainties driven by the ongoing military conflict between Russia and Ukraine and the escalation of the Middle East conflict; · considerations around post-model adjustments, mainly in response to the impact of the inflationary pressures and elevated interest rate environment being experienced, and the estimation uncertainty involved in determining ECLs on the basis of historical experience; · observations in relation to the control processes around the estimation of ECLs in respect of individually significant loans classified within the Wholesale portfolio, including the inputs to the calculations; and · considerations in respect of the governance framework around the implementation of model changes. 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 current circumstances on the adequacy of key model parameters, since these are not necessarily reflective of the circumstances and economic conditions observed during the period covered by the model development data. 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 adjustments. 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. · 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 portfolios, 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 the current macroeconomic environment on the repayment capabilities of the sampled borrowers. · Challenged the criteria used to allocate an exposure to stage 1, 2 or 3 in accordance with IFRS 9 and tested exposures 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 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 both the Wholesale and Mortgage portfolios, assessed the reasonableness of modelled PDs through a comparison of historically predicted and observed default rates. · For the Mortgage portfolio, assessed the reasonableness of market value haircuts and time to sell assumptions used as inputs to modelled LGDs. We also tested the accuracy of the bank’s data in respect of the status of perfection of collateral and the vintage years in default, assessing the key judgements applied by management to identify the exposures which are deemed to carry a higher level of risk in the estimation of ECL. · Assessed critically the criteria used by management for identifying borrowers whose financial performance is deemed to be particularly susceptible to the potential impact of the significant inflationary pressures and elevated interest rate environment being experienced. For Wholesale exposures, we independently performed an assessment to identify borrowers whose credit quality is deemed to be more sensitive to such macroeconomic uncertainties and to estimate the potential impact on ECLs arising from further downgrades in credit ratings. For Mortgages, we assessed the appropriateness of the post-model adjustment intended to address early identification of SICR events in respect of those exposures which are deemed to be more susceptible to inflationary pressures and increases in interest rates. · 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 current macroeconomic environment, including the recalibration of probability weights. We assessed whether the severity of the forecasted macroeconomic variables was appropriate and 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: · Selected a sample of performing loans, including from within those sectors that we consider to be particularly impacted by the current macroeconomic environment, 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. · 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 current macroeconomic environment 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. · Tested 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.
Implementation of IFRS 17: Transition methodology, judgements and related estimates IFRS 17 became effective for periods beginning on or after 1 January 2023, replacing IFRS 4, ‘Insurance Contracts’. As a result, the local group has adopted IFRS 17 in these financial statements. The 2022 opening statement of financial position and the 2022 comparatives have been restated in order to comply with the requirements of IFRS 17, and are presented within these financial statements. Transition to IFRS 17 introduces significant changes to the recognition, measurement and presentation of (re-)insurance contract liabilities (or assets), and requires significant judgement to estimate the impact on 1 January 2022 (the ‘transition date’) and 31 December 2022 (‘comparative period’). IFRS 17 adoption has resulted in a significant reduction in the local group’s accumulated profit at the transition date (€22.4 million). This is primarily due to the derecognition of the present value of in force business and the establishment of the Contractual Service Margin (‘CSM’) on adopting IFRS 17. The CSM is the mechanism in IFRS 17 by which profits are deferred and amortised over the duration of a contract. The key methodology, judgements and assumptions first applied on transition to the new standard include: · The determination of the date before which it is impracticable to apply the fully retrospective approach to calculate the CSM on transition; · The approach applied to determine the fair value of the CSM on transition, including the selection of assumptions used in this calculation; · The determination of IFRS 17 groups of contracts at which calculations will be undertaken, including determining the onerousness of contracts; · The methodology to be applied in calculating IFRS 17 liabilities, including risk adjustment and CSM; and · Variable Fee Approach eligibility for certain portfolios of contracts. There is a risk that the CSM modelling is not appropriate or the agreed methodology has not been implemented correctly in the CSM model. There is also a risk of error within the accounting logic used to eventually populate the General Ledger. There is a risk that the key judgements and estimates applied at transition and for 2022 restatement are not described in an appropriate level of detail for users of the financial statements to understand the decisions made by management. Relevant references in the financial statements: • Basis of preparation: Note 2(a); • Accounting policies: Note 3(i); • Note on Insurance business: Note 10; • Note on Effects of adoption of IFRS 17: Note 49; and • Critical estimates and judgements: Note 54(b). | Our audit procedures addressing the implementation of IFRS 17 included inter alia the following procedures using our IFRS 17 and actuarial specialist team members: · We assessed the methodology applied against the IFRS 17 requirements and assessed the application of the methodology to the local group and its products, including Variable Fee Approach eligibility; · We obtained an understanding of and challenged the key methodologies, judgements and assumptions used to develop and calculate the transition balance sheet and restated comparatives on adopting IFRS 17, including the determination of the level of contract aggregation; · We obtained an understanding of management’s approach to transition including the selection of the fully retrospective and fair value approaches (the ‘transition approaches’), and challenged management’s assessment of impracticability of adopting the fully retrospective approach to measure the transition CSM; · We tested the CSM model’s compliance with IFRS 17 by inter alia examining a risk based sample of management’s test cases to demonstrate that the CSM model is materially compliant with the requirements of the standard for the measurement models used by the local group. We also tested the accounting logic and assessed its compliance with the requirements of the standard; · We tested the inputs and outputs to/from the CSM model on a sample basis by inter alia performing testing of controls and substantive testing (including over key reconciliations) in relation to completeness and accuracy of data flows; · We performed testing over the calculations and assumptions used to determine the fair value of (re-)insurance contracts CSM at the transition date; and · We tested the adequacy and compliance of the new quantitative and qualitative disclosures in the financial statements. Based on the audit procedures performed, we consider the transition methodology, judgements and related estimates to be consistent with the explanations and evidence obtained.
Valuation of insurance contract liabilities As described above, the local group has adopted IFRS 17 ‘Insurance contracts’. The standard sets out the requirements that an entity should apply in accounting for insurance contracts it issues, reinsurance contracts it holds and investment contracts with discretionary participating features it issues. As at 31 December 2023, the local group recorded insurance contract liabilities of €519.4 million. As explained in Note 3(i), the local group’s insurance contract liabilities are measured as the total of fulfilment cash flows (comprising the best estimates of future cash flows and risk adjustment) and contractual service margin, the determination of which required judgement and interpretation. This includes the selection of accounting policies and the use of complex methodologies. Management’s selection and application of appropriate methodologies requires significant professional judgement. The valuation also requires the determination of assumptions about future events, both internal and external to the business, giving rise to estimation uncertainty. The valuation of these liabilities is complex and sensitive to changes in assumptions. We focused on this area due to its materiality and the subjectivity of the judgements made. As part of our consideration of the entire set of assumptions, we focused particularly on expense assumptions, and mortality, morbidity and lapse assumptions as these are considered the most significant and judgemental, considered individually below. In addition, the complexity of the IFRS 17 adoption has been considered separately in the key audit matter above titled ‘Implementation of IFRS 17: Transition methodology, judgements and related estimates’. Valuation of insurance contract liabilities - expense assumptions The valuation of insurance contract liabilities includes estimated future expenses that are expected to be incurred in the administration and maintenance of the existing policies to their maturity and includes an allowance for future inflation. The assumptions used require judgement, particularly with respect to the allocation of expenses to future maintenance, the estimation of policy volumes and future cost inflation. IFRS 17 brought about certain changes to the treatment of expenses, requiring the local group to analyse expenses between acquisition costs, directly attributable expenses and non-attributable (i.e. out of scope) expenses. The valuation of the insurance contract liabilities is sensitive to changes in allocations between categories and changes in assumptions. Valuation of insurance contract liabilities - mortality, morbidity and lapse assumptions Insurance contract liabilities are sensitive to the choice of assumptions, with those relevant to mortality, morbidity and lapse assumptions highlighted as amongst those having the biggest impact. There is a risk that the assumptions are not appropriate given the variability in experience and the relatively small size of the local group’s business, given the pool of data from which to assess experience. In setting mortality, morbidity and lapse assumptions, management utilise the local group's own historic experience, supplemented with additional external data in the calculation of the appropriate assumptions. In doing so there is a risk that mortality, morbidity and lapse assumptions are not appropriate. With the adoption of IFRS 17, the local group is now required to set assumptions on a best estimate basis (i.e. without margins). Relevant references in the financial statements: • Accounting policies: Note 3(i); • Note on Insurance business: Note 10; and • Critical estimates and judgements: Note 54(b). | We performed the following audit procedures to test the valuation of insurance contract liabilities (including best estimate liabilities, risk adjustment and contractual service margin), using our IFRS 17 and actuarial specialist team members: · Tested the design and, where applicable, operating effectiveness of the controls in place over the determination of the insurance contract liabilities, including those relating to model inputs, model operation and extraction of results from the actuarial model; · Tested the design and, where applicable, the operating effectiveness of controls related to the completeness and accuracy of policyholder data used in the valuation of insurance contract liabilities; · Tested the accuracy of the underlying data utilised for the purposes of measurement by reference to its source; · Applied our industry knowledge and experience to assess the appropriateness of the methodology, model and assumptions used against recognised actuarial practices; · Tested management’s controls in respect of the valuation and assumption setting processes; · Performed testing over the actuarial model calculations. We have placed reliance on model baselining carried out as part of our prior audits and examined the analysis of change in modelled results, to assess whether the model continues to operate as expected; and · Performed model testing over the CSM engine (see separate key audit matter pertaining to Implementation of IFRS 17). In respect of the expense assumptions, we performed the following additional procedures using our IFRS 17 and actuarial specialist team members: · We have tested and challenged the appropriateness of the allocation between attributable and non-attributable expenses on a sample basis; · We have reviewed, and where relevant, challenged the appropriateness of these cost allocations in the context of IFRS 17 requirements (see separate key audit matter pertaining to Implementation of IFRS 17) and actual costs incurred during the year (by inter alia obtaining an understanding of variance prepared by management); · We have assessed the impact of the current inflationary environment on the assumptions. In this respect, we understood and challenged the basis on which expenses are projected by reference to market observable data (inflation curve), and further understood the main drivers of the increase in per policy expenses (disclosed in Note 54) and challenged management’s intent to carry out certain future actions linked to attributable expenses by inter alia confirming that these actions were approved by the Board of Directors; and · We have assessed the reasonableness of the policy volumes used in the expense calculation. In respect of the mortality, morbidity and lapse assumptions, we performed the following additional procedures using our actuarial specialist team members: · We tested the design and operation of controls within the experience analysis and input of assumptions into the model processes; · Tested the results of the most recent mortality, morbidity and lapse experience analysis against the judgements applied in setting the assumptions; · Tested the appropriateness of the local group’s experience analysis methodology by comparing against industry best practice; · Tested the appropriateness of the assumptions in light of the specific characteristics of the business and industry practices; and · Reviewed management’s sense checks and performed internal reasonableness analytics over the impacts of any assumption changes. In respect of all the assumptions referred to above, we have reviewed the management’s approach to setting the assumptions, assessed the assumptions’ appropriateness based on internal and external data (where available), 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. Based on the work performed, we found the valuation of insurance contract liabilities (including best estimate, risk adjustment and contractual service margin) 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 group audit engagement team carried out a full scope audit on the Parent Company. The financial statements of HSBC Life Assurance (Malta) Ltd were audited by a component auditor within the same office as the group audit engagement team and, in this respect, we determined the level of involvement we needed to have in their audit work to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated ﬁnancial statements of the local group as a whole. The figures of HSBC Global Asset Management (Malta) Limited are deemed to be immaterial in the context of the local group’s results.

The audit engagement 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 2023 (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, future events or conditions may cause the local group or the bank to cease to continue as a going concern.

· 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 2023, 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 2023 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.

Other reporting requirements

The Annual Report and Accounts 2023 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 2023 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 Directors’ report, 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 Directors’ report 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 Directors’ report 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 Directors’ report, 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 Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and · the Directors’ report 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 bank on 22 April 2015. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 9 years.

Norbert Paul Vella

Principal

For and on behalf of

PricewaterhouseCoopers

78, Mill Street

Zone 5, Central Business District

Qormi

Malta

21 February 2024