High level review of Hsbc Financial statement

 




We at LA consults are professionals.We conduct pre-audit and various services .Today we decided to do a financial review of HSBC in Malta as uploaded recently by HSBC for the general public.


1. Key Financial Highlights and Variance Analysis:

Metric 2024 2023 Change
Profit Before Tax (€m) 78.6 59.3 +19.3
Net Interest Income (€m) 106.6 89.7 +16.9
Revenue Growth (%) 20.0% 0.0% +20.0%
Net Fee Income (€m) 10.8 10.7 +0.1
Expected Credit Loss Release (€m) 7.0 2.6 +4.4
Operating Expenses (€m) 56.1 49.5 +6.6
Return on Equity (%) 18.3% 16.2% +2.1%
Cost Efficiency Ratio (%) 43.9% 46.6% -2.7%
Liquidity Coverage Ratio (%) 552% N/A N/A
Tier 1 Capital (%) 21.1% 20.6% +0.5%
Total Assets (€bn) 7.68 7.66 +0.02
Total Liabilities (€bn) 7.11 7.12 -0.01
Equity (€m) 575.67 543.03 +32.64

2. Analytical Observations:

  • Profitability:

    • Profit Before Tax rose by €19.3 million (32.5%), driven by increased interest income and credit recovery.
    • Net Interest Income grew significantly by €16.9 million (18.8%), reflecting the impact of higher interest rates.

  • Revenue & Expenses:

    • Revenue Growth of 20% is substantial, primarily from interest rate hikes and trading income.
    • Operating Expenses increased by €6.6 million (13.3%), mainly due to investments in technology, staff, and the new HQ (HSBC Hub).

  • Credit Risk:

    • A €7 million release in Expected Credit Losses (ECL) suggests strong credit recoveries and improved asset quality.
    • Reduction in non-performing loans by 28% indicates effective risk management.

  • Capital & Liquidity:

    • Strong Tier 1 Capital ratio of 21.1%, exceeding regulatory requirements.
    • Exceptional Liquidity Coverage Ratio (552%), indicating a robust liquidity position.

  • Efficiency:

    • Cost Efficiency Ratio improved from 46.6% to 43.9%, showing better cost management relative to revenue growth.

3. Red Flags & Areas Requiring Further Review:

  1. Unusual ECL Release:

    • The sharp increase in ECL release (+€4.4 million) requires validation—are recoveries sustainable, or is this a one-off event?

  2. Rapid Revenue Growth vs. Stable Fee Income:

    • Despite a 20% revenue growth, Net Fee Income increased marginally (€0.1 million). This could indicate over-reliance on interest income, which may be sensitive to interest rate fluctuations.

  3. Asset-Liability Mismatch:

    • Minor decrease in liabilities (-€0.01 billion) against an increase in assets (+€0.02 billion)—ensure this isn't exposing the bank to liquidity or funding risks.

  4. Operational Costs:

    • Significant rise in operating expenses (+13.3%)—evaluate if these investments are yielding the expected returns, especially in IT and real estate.

4. Recommendations:

  • Credit Risk Review:

    • Conduct a detailed review of the ECL methodology and credit recovery assumptions.

  • Revenue Diversification:

    • Reduce dependency on interest-related income by expanding fee-based products/services.

  • Expense Control:

    • Implement tighter cost management strategies, especially in non-core areas, to maintain efficiency gains.

  • Stress Testing:

    • Perform stress tests on liquidity and capital adequacy, given global economic uncertainties
We conduct pre audit that can help a business consolidate , request a quote today .

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