HSBC BANK MALTA P.L.C. Notes on the Financial Statements (continued) HSBC Bank Malta p.l.c. Annual Report and Accounts 2016 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 comprises around 4,000 offices in 70 countries and territories in Europe, Asia, North and Latin America, and the Middle East and North Africa. HSBC Bank Malta p.l.c. Registered in Malta: number C3177 Registered Office and Head Office: 116 Archbishop Street Valletta VLT 1444 Malta Telephone: 356 2380 2380 Facsimile: 356 2380 4923 www.hsbc.com.mt HSBC Holdings plc Registered Office and Group Management Office: 8 Canada Square London E14 5HQ United Kingdom Telephone: 44 020 7991 8888 Facsimile: 44 020 7992 4880 www.hsbc.com HSBC BANK MALTA P.L.C. Contents 2 Chairman’s Statement 9 Chief Executive Officer’s Review 20 Board of Directors and Company Secretary 22 Executive Committee 25 Report of the Directors 32 Directors’ Responsibilities Statement 33 Statement of Compliance with the Code of Principles of Good Corporate Governance 43 Remuneration Report 49 Independent Auditor’s Report to the Members of HSBC Bank Malta p.l.c. 57 Income Statements 58 Statements of Comprehensive Income 59 Statements of Financial Position 60 Statements of Changes in Equity 62 Statements of Cash Flows 63 Notes on the Financial Statements 166 Additional Regulatory Disclosures 185 Income Statements and Statements of Comprehensive Income: Five-Year Comparison 186 Statements of Financial Position: Five-Year Comparison 187 Statements of Cash Flows: Five-Year Comparison 188 Accounting Ratios: Five-Year Comparison 189 Financial Highlights in US dollars 190 Branches and Offices 1 HSBC BANK MALTA P.L.C. Chairman’s Statement 2016 delivered many surprises especially on the L-2016 kienet sena li ġabet ħafna sorpriżi, speċjalment international political scene, and on both sides of the fix-xena politika internazzjonali u fuq iż-żewġ naħat tal- Atlantic resulting in significant uncertainties about the Atlantiku, bir-riżultat li nħolqu bosta inċertezzi serji dwar future direction of some of the world’s major economies. fejn sejrin uħud mill-ekonomiji l-kbar tad-dinja. Minbarra Besides these political uncertainties, 2016 continued to dawn l-inċertezzi politiċi, l-2016 kompliet iġġib sfidi be a challenging year for the banking sector, in particular għas-settur bankarju, speċjalment għal dawk fiż-żona tal- within the eurozone. The prevailing context of low interest ewro. Il-kuntest prevalenti ta’ rati baxxi tal-imgħax, żidiet rates, continuing increases in costs and regulatory kontinwi fl-ispejjeż u l-pressjoni tar-rekwiżiti regolatorji demands, have continued to affect the performance of komplew ikollhom effett fuq l-andament ta’ ħafna banek most European banks. Ewropej. Despite this rather gloomy backdrop, the performance Minkejja dan l-isfond kemmxejn mudlam, l-ekonomija of the Maltese economy remained resilient throughout Maltija baqgħet iżżomm sod matul l-2016, u t-tbassir 2016, and forecasts for 2017 are positive. The għall-2017 huwa pożittiv. Il-prestazzjoni tal-ekonomija performance of the local economy augurs well in terms Maltija tawgura tajjeb għal dawk li huma opportunitajiet of the opportunities this can present for our bank. li tippreżenta għall-bank tagħna. Results Riżultati Profit before tax for the year under review was €62.2m, Il-profitt qabel it-taxxa għall-2016 kien ta’ €62.2m, żieda an increase of 33% when compared to the 2015 results. ta’ 33% meta mqabbel mar-riżultati tal-2015. Il-profitt Adjusted profit before tax, which excludes the effect of aġġustat qabel it-taxxa, li jeskludi l-effett ta’ entrati li non-recurring items was €59.4m, 3% down on 2015 but ma jirrepetux ruħhom kien ta’ €59.4m, 3% anqas milli in line with management expectations. fl-2015 imma konformi mal-aspettativi tal-management. The bank’s capital position remained solid and Il-pożizzjoni tal-kapital tal-bank baqgħet soda u during 2016, the bank continued to build a strong capital matul l-2016 il-bank kompla jsaħħaħ il-bażi kapitali. base. Common equity tier 1 capital increased to 13.2% Il-common equity tier 1 capital żdied għal 13.2% minn from 12.3% at the end of 2015. At December 2016, the 12.3% fl-aħħar tal-2015. F’Diċembru 2016 il-bank kien bank was compliant with its end-point regulatory capital konformi mar-rekwiżiti ta’ kapital regolatorju kollu requirements. This enabled the bank to maintain its li kellu jilħaq. B’hekk il-bank seta’ jżomm il-ħlas dividend payout ratio at 65% of the profit after tax, one tad-dividend fil-livell ta’ 65% tal-profitt wara t-taxxa, of the highest in the industry. During the year, the bank wieħed mill-ogħla fl-industrija. Matul is-sena l-bank adhered to the revised Banking Rule 09 which imposes segwa r-Regola Bankarja Nru 9, kif riveduta, li timponi higher allocations for past due exposures. Taking allokazzjonijiet ogħla għal self li ma jitħallasx lura into consideration the reduction in non-performing f’waqtu. Minħabba li naqqas is-self li ma kienx jirrendi, exposures, the bank was not required to set aside an il-bank ma kienx meħtieġ iwarrab ammont addizzjonali additional General Banking risk provision. bħala provvediment ġenerali għar-riskju bankarju. 2 Profit attributable to shareholders amounted to Il-profitt attribwibbli lill-azzjonisti ammonta għal €40.2m resulting in earnings per share of 11.2 cent €40.2m li jirriżulta fi qligħ sehem b’sehem ta’ 11.2 compared with 8.5 cent in 2015. The Board recommends ċenteżmi, imqabbel ma’ 8.5 ċenteżmi fl-2015. Il-Bord a final gross dividend of 4.1 cent per share (2.7 cent per jirrakkomanda dividend gross finali ta’ 4.1 ċenteżmi share net of tax). Together with the interim dividend paid kull sehem (2.7 ċenteżmi kull sehem wara t-taxxa). Meta in September 2016, the total gross dividend for the year tgħodd dan mad-dividend interim imħallas f’Settembru will be 11.2 cent per share (7.3 cent per share net of tax), 2016, id-dividend gross totali jilħaq 11.2 ċenteżmi kull which represents a 45% increase compared to the 2015 sehem (7.3 ċenteżmi kull sehem wara t-taxxa), li jfisser dividend. The final dividend will be paid on 20 April żieda ta’ 45% meta mqabbel mad-dividend tal-2015. 2017 to shareholders who are on the bank’s register of Id-dividend finali ser jitħallas fl-20 ta’ April 2017 lill- shareholders at 14 March 2017. azzjonisti li kienu fuq ir-reġistru tal-azzjonisti tal-bank fl-14 ta’ Marzu 2017. Our regulatory environment L-ambjent regolatorju The pace and complexity of regulatory change during the year under review continued to be very demanding Il-pass u l-komplessità tal-bidliet regolatorji li seħħew and costly. New regulations were issued requiring matul is-sena li qed nirrapportaw dwarha reġgħu the bank to intensify its efforts to ensure a smooth swew ħafna riżorsi u spejjeż. Ħarġu regolamenti ġodda implementation. li kienu jeħtieġu li l-bank jintensifika l-isforzi biex l-implimentazzjoni tagħhom tkun bla skossi. The regulatory change programme revolved around the adoption of new international standards, such as Il-programm ta’ bidla regolatorja kien dar madwar those brought about by the Common Reporting Standard l-adozzjoni ta’ standards ġodda internazzjonali, (CRS), where a number of countries around the world pereżempju dawk li daħlu bl-Istandard ta’ Rappurtar agreed within the context of the Organisation for Komuni (il-Common Reporting Standard jew CRS), li Economic Co-operation and Development (OECD) to bih għadd ta’ pajjiżi madwar id-dinja qablu, fil-kuntest start sharing information to tackle tax evasion. tal-Organizzazzjoni għall-Kooperazzjoni Ekonomika u Żvilupp (OECD), li jgħaddu l-informazzjoni lil xulxin During 2016, the bank implemented the Central Credit biex jikkumbattu l-evażjoni tat-taxxa. Register (CCR), which was introduced by Directive 14 of the Central Bank of Malta (CBM) requiring banks to Matul l-2016, il-bank beda jħaddem ir-Reġistru provide information to the CBM on natural and legal Ċentrali tal-Kreditu (CCR). Dan ir-Reġistru ddaħħal bid- persons having exposures in excess of €5,000. Direttiva Nru 14 tal-Bank Ċentrali ta’ Malta (CBM) li titlob lill-banek jagħtu informazzjoni lill-Bank Ċentrali The Market Abuse Regulation (MAR) and the Market dwar persuni naturali u legali li jkollhom bilanċi ta’ self Abuse Directive II (MAD II) became effective in July li jeċċedu l-€5,000. 2016, requiring banks to take actions aimed at enhancing and harmonising the EU regime on market abuse. Ir-Regolament dwar l-Abbuż fis-Suq (MAR) u t-tieni Direttiva dwar l-Abbuż fis-Suq (MAD II) bdew Financial inclusion was enhanced through the japplikaw minn Lulju 2016. Dawn jeħtieġu li l-banek Payment Account Directive (PAD), requiring banks to: jieħdu passi biex ir-reġim tal-Unjoni Ewropea (UE) dwar improve the transparency and comparability of fees on l-abbuż fis-suq ikun imtejjeb u armonizzat. payment accounts; facilitate payment account switching; and give access to every EU resident to a basic banking Permezz tad-Direttiva dwar Kontijiet ta’ Pagament account. (PAD) iddaħħlet aktar inklużjoni finanzjarja. B’din id-direttiva l-banek iridu jżidu t-trasparenza u These developments were implemented by the l-komparabilità fit-tariffi fuq kontijiet ta’ pagament, bank in parallel with preparations for the imminent jagħmluha aktar faċli biex wieħed jaqleb minn kont introduction of further regulations, namely Markets in ta’ pagament għal ieħor, u jippermettu lil kull persuna Financial Instruments Directive (MiFID) II; Payment residenti fl-UE li tuża kont bankarju bażiku.