Opinion • February 22 2004

HSBC’s profits

Karmenu Farrugia is not so sure Malta is going through a recession and has a controversial suggestion to make that will not please some banks

In the absence of the Prime Minister, it befell his deputy to officiate at the opening ceremony of HSBC’s refurbished operations centre in Qormi. He had first to listen to its CEO emphasising that the Lm 5million investment was by far HSBC’s biggest infrastructural project in Malta, significantly of direct benefit to its customers because, as a result of centralising back-office functions, staff in its branch network would be able to devote more time to serving them.
Was the deputy prime minister’s reply speech prompted by the bank’s own public relations officer or was he genuinely impressed? I would rather readers judge for themselves.
The acting Prime Minister lauded HSBC for taking a lead with respect to competitiveness, especially concerning work practices. There followed a string of plaudits which included (a) emphasis on productivity, (b) provision of excellent working conditions, (c) strong sense of corporate social responsibility, and (d) confidence in Maltese companies and workers in delivering work “ to the highest international standards and within a short-time frame.”
Far be it from me to dispute the veracity of these four attributes and qualities. Nevertheless, I would not be writing on HSBC today if the acting prime minister had also been able to add ‘economic’ to the bank’s sense of social responsibility. He could not. Certainly not as a contending premier-in-waiting. He must have been reminded of the very raison d’etre in selling Mid-Med bank to HSBC (the attraction of foreign investors), so vital now in Malta’s current economic proscenium, with the Opposition hollering in the streets that the country is facing “a crisis in the economic and social spheres” and that only a “regeneration plan” could possibly enable it to face the many challenges confronting it as it prioritises the problems that should be tackled first. Unemployment tops the list. Fiscal sobriety follows closely.
The acting premier could not even find solace in the utterings of his cabinet colleague, the minister of education, also a premiership aspirant, who gratuitously stated at the hustings, “It is not that we have some unprecedented catastrophe.” The Opposition never indicated any catastrophe, only a crisis. Is the economy in a crisis? I wish I could honestly answer aye or nay. But I can’t. There are several facets which indicate aye, but there are also a few which look in the opposite direction. HSBC is a case in point, albeit in a queer sort of fashion.
The figures to follow - to the nearest Lm 1million - have all been culled from a recently published profit statement for last year and refer only to HSBC’s banking function within its group as this is the economy’s main concern. In any case it incorporates 97 per cent of the group’s total assets.
During 2003, whereas HSBC paid Lm 10million less by way of interest to its depositors, it received only Lm 5 million less from its lendings over the previous year. An increase in profitability of Lm5 million. Doesn’t this indicate a widening of the bank’s interest margin, its ‘turn,’ between borrowing and lending? Is this healthy in an economic environment of almost total growth absence? Is this the way Malta’s largest bank (and the world’s local bank) is contributing to the economy’s efforts in trying to ride through recessionary times?
More. Another Lm 5 million year-on improvement in profitability derived from a previous Lm 2 million impairment loss (doubtful debts) converting to impairment releases (gains) totalling Lm 3 million. Which goes to show the restrictive nature of its lending culture. Good for the bank’s shareholders, but bad for one of its important stakeholders, the borrowing sector as it struggles to survive the downswing of an economic cycle, as the education minister chose to describe it in the same hustings speech. A cycle with perennial budget deficits! Unbelievable.
What about the additional charges and punitive measures introduced in the banking sector since the advent of HSBC, previously unthought of? For cashing cheques, amending dates in documentary credits, renewing lending facilities each year (an ‘ad valorem’ charge). Need I continue?
As a financial consultant I am privy to a case where it took the bank ten weeks to discover that a foreign banker’s cheque was a fraud. My client’s account was arbitrarily debited with the full amount even though the case is sub judice. The bank insists that it is indemnified up to twenty years, even though the client was told more than once that all was clear. Another bank has been charging a client company in distress interest at 9.5 per cent for exceeding its approved limits. Not on the excess, but on the whole lot. The client is always free to sell the hypothecated property, even if this means the collapse of the business. The oddity is that only banks are free to charge what they like. Others’ rate is capped at 8 per cent per annum. Otherwise usury.
There is something awry in an economy which permits its main bank, whose impact on it almost matches that of the finance minister himself, to boast a 24 per cent increase in profits whilst most economic operators (its clients) struggle to contain losses or profit reductions. When a similar scenario occurred in Britain two decades ago or so, prime minister Thatcher coerced the banks to pay a windfall-profits tax. ‘Suasion’ (the Bank of England's petname for gentle persuasion) it was called.
Why can’t we do the same here? Surely, our exchequer could do with the extra lolly.
Is this the type of competitiveness we need to emulate and “which shall become more relevant with Malta’s accession into the EU?” I very much doubt.