hsbc bank malta p.l.c

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233 Republic StreetValletta VLT 1116, MaltaTelephone: 356 2597 0000Customer Service: 356 2380 2380 Facsimile: 356 2380 4923

www.hsbc.com.mt

HSBC Bank Malta p.l.c.

Annual Report and Accounts 2009

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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 8,000 offices in 87 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.

The HSBC Group

HSBC Bank Malta p.l.c.Registered in Malta: number C3177Registered Office and Head Office: 233 Republic StreetValletta VLT 1116MaltaTelephone: 356 2597 0000Customer Service: 356 2380 2380Facsimile: 356 2380 4923www.hsbc.com.mt

HSBC Holdings plcRegistered Office and Group Head Office:8 Canada SquareLondon E14 5HQUnited KingdomTelephone: 44 020 7991 8888Facsimile: 44 020 7992 4880www.hsbc.com

© Copyright HSBC Bank Malta p.l.c. 2010All 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 Black Sun Plc, London; text pages designed by Group Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, Hong Kong.

Printed by Gutenberg Press, Gudja Malta, on Quatro Art Silk paper using vegetable oil-based inks. Made in Germany, the paper comprises 100% virgin fibre. Pulps used are totally chlorine-free.

ISSN 1811-7570ISBN 978-9932-12-11-9

Photography: Zone V Co. Ltd.Pages 3, 5, 6, 7, 9 and 11: Rene RossignaudPage 8: The Banker, The Financial Times LimitedPage 10: Andrew Gauci AttardPages 12 and 13: Zone V Co. Ltd., Allen Venables and HSBC Bank plc

Contents

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H S B C B A N K M A L T A P . L . C .

2 Chairman’sStatement

5 ChiefExecutiveOfficer’sReview

9 ChiefTechnologyandServicesOfficer’sReview

12 BoardofDirectors

14 FinancialReview

16 ReportoftheDirectors

20 StatementofCompliancewiththePrinciplesofGoodCorporateGovernance

24 RemunerationReport

25 Directors’responsibilityfortheFinancialStatements

26 IncomeStatements

27 StatementsofComprehensiveIncome

28 StatementsofFinancialPosition

29 StatementsofChangesinEquity

31 StatementsofCashFlows

32 NotesontheAccounts

89 ReportoftheIndependentAuditorstotheMembersofHSBCBankMaltap.l.c.

91 GroupIncomeStatementsandStatementsofComprehensiveIncome:Five-YearComparison

92 GroupStatementsofFinancialPosition:Five-YearComparison

93 GroupStatementsofCashFlows:Five-YearComparison

94 GroupAccountingRatios:Five-YearComparison

95 GroupFinancialHighlightsinUSdollars

96 BranchesandOffices

Chairman’s Statement

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In 2009 HSBC Bank Malta p.l.c. commemorated itstenth anniversary and I am pleased to advise it hasdeliveredastrongperformanceinspiteofchallengingeconomicconditionsandvolatilemarkets.

Results

Profitbeforetaxationwas§71.2million.Thisrepresentsa decrease of 25.9 per cent over prior year but issatisfactoryintheseuncertaintimes.

HSBCBankMaltawasinnowaydirectlyexposedtothefinancialcrisis,however,therewasnoescapingtheconsequencesoftheeconomicslowdown.

The low interest rate environment experiencedduring2009hasledtoconsiderablemargincompressionandtoughercompetitionforcustomerdepositsandthishadanegativeimpactonprofits.

Profitattributabletoshareholdersdecreasedby27.3percentto§45.9million.Onthebasisoftheseresultsthe Board is recommending a final gross ordinarydividendof8.0eurocentpershare.Thisfollowsontheinterimgrossdividendof7.7eurocentpershare (5.0eurocentnetoftax)paidinAugust2009.Thisbringsthetotaldividendfortheyearto15.7eurocent.

During2009thenumberofthebank’sshareholderscontinuedtogrowandnowexceeds10,300.Thisreflectstheconfidencethepublichasinourorganisationanditsfutureperformance.

HSBCBankMaltap.l.c.isasubsidiaryofLondon-based HSBC Holdings plc, one of the world’s topfinancial brands, and remains the largest companylisted on the Malta Stock Exchange with a marketcapitalisationwellinexcessof§1.0billion.

Strategy

During this past decade the bank has undergoneconsiderable change which has brought about arevolution within the local financial services sector.Over the years many milestones have been reached.These have included reaching exceptional levels ofperformance, introducing innovative products andservices,thelatesttechnologyandsystems,newworkpractices, and setting up a Global Call Centre inSwatar.

During the year under review the bank continuedwith its strategy, which is founded on seven globalpillars, of building sustainable growth by focusingon its main customer groups. The bank aims togrow its business by providing excellent customerservice, using our global distribution network to ourcustomers’advantage,joiningupourcompanyintermsoftechnologyandprocesses,andleveragingourworldrenownedbrand,tomakeiteasierforcustomerstodobusinesswithus.

In 2009 we were once again fortunate to haveHSBC’s Global Group Chief Executive, Mr MichaelGeoghegan,visitusaspartofhisworldwideroadshowandupdateusonwhatishappeningaroundtheGroupand what initiatives are being taken in the currenteconomicenvironment.

HSBC Bank remains one of the most stronglycapitalised and liquid banks in the world. Over 100million customers worldwide entrust HSBC withUS$1.2 trillion in deposits. HSBC has more depositsthan loansandoperates in87countriesand territoriesworldwide.

We are committed to putting the customer at thecentre of everything we do. We believe in buildingstrong customer relationships that are sustainable andmutually beneficial. To achieve this we will continueinvesting in our staff, in the latest technology and

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systems, and in developing innovative products andserviceswhichoffergreatercustomerconvenience.

Ouraim is tobe theBestBank inMalta, theBestPlace toWork,BestBank forShareholders, andBestBankintheCommunity.

Corporate Sustainability

HSBCworldwideisknownforitsconsistentleadershipand commitment towards the societies where itoperates. In Malta, HSBC remains very active inthe improvement of education and the quality of lifeparticularly of children in challenging circumstances;inenvironmentalsustainabilityandinthepreservationofthecountry’sheritage.

HSBC is also a keen supporter of culture and thearts.Thebank’sassociationwithannualconcertsbytheworldrenownedtenorJosephCalleja,whoin2009wasaccompaniedbyanothermusicicon,MichaelBolton,isafineexampleofthis.

On the 19th March of every year, HSBC partnerswithotherlargecorporateswhoseemployeesvolunteera day’s work to carry out work in care homes.Throughouttheyear,HSBCalsolendsitssupporttotheMalta Hospice Movement, the OASI Foundation andtheMaltaDiabetesAssociationandisthemainsponsorofWorld’sChildrenDayinMalta.

As the pillars of tomorrow’s society, childrenare a responsibility which HSBC invests in throughhighly specialised educational and literacy projects,counsellingservicesandrecreationalandrehabilitationprogrammes. HSBC continued its strong support forTheMaltaCommunityChestFund in its fund-raisingevents, and contributed significantly to the RockestraconcertandL-Istrinamarathon.

HSBCJuniorAchievementYoungEnterpriseMalta,the Scoops Programme, the Students Council at theUniversityofMaltaandJuniorChamberInternationalareotherbeneficiariesofHSBC’s financialassistancewhichencourageseducationatalllevels,fromsecondarytotertiaryandbeyond.

Another important area where HSBC leads byexample is with the environment. HSBC not onlyruns its operations in a carbon-neutral manner, italso funds environmental programmes and initiativesagainstclimatechangeandcontributes tangiblyin theimprovement of the Maltese environment. The latestcommitment to plant 1,500 trees at the Mag˙tab site to mark the tenth anniversary of HSBC in Malta isanothergreencredentialforthebank,bringingthetotalnumber of trees planted by HSBC as part of Malta’safforestationprogrammeto25,000.

In2009,HSBCreneweditssupporttotheEkoSkolaProgramme, run in schools by Nature Trust (Malta)to encourage good environmental practices amongstudents.Theglobalprogramme,runjointlybyHSBCand the Foundation for Environmental Education, isbacked by a financial commitment from HSBC ofUS$2.5 million over three years. In Malta, HSBCis making available over US$40,000 to run theprogramme.

Through our own Maltese Climate Championswe also actively participate in the Climate ChangePartnership Programme which the HSBC Group isfundingworldwide, at a cost ofUS$100millionoverfiveyears.HSBCalsosupportsinitiativestocelebrateWorldEnvironmentDayandtheCleanUptheWorldcampaign.

Maltese tenor Joseph Calleja and international music icon Michael Bolton delighted the crowds during an HSBC sponsored concert at Luxol Grounds, St. Andrews on �9 July �009.

HSBC is a proud supporter of Malta’s heritageand invests substantially in its preservation. HSBC istherefore the official patron of the National MuseumofFineArts,wherethisyearitfundedtheopeningofthe HSBC Vincenzo Bonello library, and renewed itssupporttoFondazzjoniPatrimonjuMalti.

The HSBC philosophy is that a thriving societyis critical to its future success as The World’s LocalBank.Thatiswhyitinvestsinthefundamentalbuildingblocksforthedevelopmentofitscommunities,withitssupportofchildren, theenvironment,heritage,cultureandthearts.

In2009,HSBCpledgedover§330,000intotalforits Corporate Sustainability programme, partneringwithandsupportingentitieswhicharedoingasterlingjob in keeping the vulnerable elements of society ontheirfeet.

This is how HSBC remains committed tosustainability and strives to make a difference in thecommunity.

Board

During 2009 there was one change to the Boardof Directors from those nominated by minorityshareholders. Mr Victor Scicluna, who served on theBoard for a number of years did not seek re-electionand was replaced by Mr James Dunbar Cousin, aformer senior HSBC executive who recently retiredafteralonganddistinguishedcareerwiththebank.

IwouldliketoconveymygratitudetoMrSciclunafor his loyal contribution to our organisation duringthese past years. I also warmly welcome Mr DunbarCousin,whoIamcertainwillusehisknowledgeandvast experience for the benefit and future success ofthebank.

I would also like to advise that Director CharlesJohn Farrugia, who until recently acted as the bank’sHead of Global Banking and Markets, has decidedto retire from the organisation after many years ofdedicatedandprofessionalservice.However,itiswithgreat satisfaction to note that Mr Farrugia has agreedtocontinuetoserveasaDirectorofthebankinanon-executivecapacity.

The Board has a distinctive mix of members whothrough their collective skills, vast knowledge andwealth of experience have managed to successfullyguide the bank in these exceptionally difficult times.BesidesmyselfasChairman,theBoardiscomposedoftwoexpatriateExecutiveDirectorswhoarealsoChiefExecutiveOfficerandChiefTechnologyandServicesOfficerofthebank,onelocalExecutive,fourprominentNon-ExecutiveDirectors(whoareallMaltese)andoneoverseas-based Director who is Head of InternationalofHSBCBankplc.

I look forward to continue working with theseDirectorsandbuildingonachievementsforasuccessfulfuture.

Recognition

IamalsodelightedtobeabletoreportthatourpreviousChiefExecutiveOfficer,MrShaunWallis,wasawardedTheNationalOrderofMerit fromtheGovernmentofMaltainrecognitionforhisachievementsinsupportingtheMalteseeconomy.ThisisaremarkablehonouranddoesHSBCproudatatimewhenthebankiscelebratingitstenthanniversaryofoperationsinMalta.

Outlook

Whilstprofitabilityatthebankwillcontinuetobeunderpressureintheshortterm,IamconfidentthatwiththebackingoftheHSBCGroup,ourenduringcommitmenttoliquidity,strongcapitalandaconservativeapproachto risk management, we are well-positioned to buildon our many strengths and support our customers indrivingfuturegrowth.

MygratitudeandappreciationgoestotheBoardofDirectors,ManagementandStaffofthebankfortheirongoing contribution, diligence and commitment indeliveringtheseresultsin2009.

I also thank our Shareholders for their steadfastsupportandourCustomersfortheircontinuedtrustinourorganisation.

Letuslookforwardtoanotherdecadeofsuccess.

AlbertMizzi,Chairman 22February2010

Chairman’s Statement (continued)

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Chief Executive Officer’s Review


2009hasclearlybeenachallengingyear forboth thebankanditscustomers.Ithasbeenayearcharacterisedby pressure on profitability as a consequence of ageneral slowdown in economic activity, continuedlow interest rates (which have resulted in significantmargin compression) and ongoing volatility in equityandbondmarketswhichhaveinevitablyimpactedourinvestment-relatedbusinesses.

Inspiteofdifficultmarketconditions,HSBCBankMalta has continued to deliver strong results for itsshareholderswhereourprofitabilityrelativetohistoryand peers remains attractive with a return on equityat 15.0 per cent. These results are a testament to theprofessionalism, commitment and hard work of ourstaff who performed admirably in demanding andcomplexcircumstances.

Performance

Profit before taxation for 2009 amounted to §71.2million,adecreaseof25.9percentover thepreviousyear. Given the well-documented global economiccrisisandtheexceptionallydifficultmarketconditions,thisisagoodresult.

Theresultswereunderpinnedbyasolidperformanceinthecircumstancesfromallofourprincipalcustomergroups: Personal Financial Services; CommercialBanking; and Global Banking and Markets. Oursubsidiarycompaniesalsodeliveredsoundperformancesandmadeasignificantcontributiontoprofits.

The most significant drop in revenue related tointerest income. During the year, interest receivabledecreased by §76.5 million or 31.1 per cent whencompared to prior year. While this was somewhatoffsetbylessinterestpaid,overallnetinterestincomedecreased by 14.7 per cent. It is important to stressthatinterestincomewouldhavebeenfurtherimpacted

had it not been for the proactive re-pricing of ourcommercial and personal lending portfolios to betterreflectthemarketanditsinherentrisksandthehighercostofcapital.

It is pleasing to note that thanks to maintaining astrict cost discipline, expenses decreased by 7.3 percentduringtheyearinspiteofa4.0percentincreaseembeddedintheCollectiveAgreementforsalaries.Ourcost-to-incomeratiostoodat52.5percentwhichwhilst4.5percenthigherthanprioryear,waslargelydueofcoursetolowerlevelsofincome.

Loanimpairmentshave,notunexpectedly,increasedto§4.2million.This increase isoffanextremely lowhistoric base and remains at relatively modest levelsin comparison to the sizeof theoverall lendingbookand benchmarks of other financial institutions aroundtheworld.Thisisareflectionofthecontinuedprudentapproach to lending within the bank and the closeworking relationship we have with our customersincludingthoseexperiencingfinancialdifficulties.

Profitattributabletoshareholderswas§45.9million,whichisrespectableintheprevailingcircumstances.

Totalassetsdecreasedto§5,117.8millionmainlyduetolowerlendingactivitytootherfinancialinstitutions.New lending to customers was §662.2 million (a netincreaseof§114.2million)whichreflectsourongoingsupporttoourcustomersandthelocaleconomy.Totalliabilitiesdecreasedby§202.4millionduringtheyear.Themainreasonforthisisareductionininstitutionaldeposits.Customerdepositsrosebyover§70.0million,whichisapositivesignanddemonstratesthetrustourpersonalcustomershaveinourorganisation.

We remain very well capitalised. Our capitaladequacyratiois11.8percentwhichiswellinexcessoftheregulatoryrequirementof8.0percent.Wealsoremain very liquid with an assets-to-deposits ratio of79.0percent.

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InlightofthesecommendablefinancialresultstheBoardisrecommendingafinalgrossordinarydividendof8.0eurocentpershare.

Personal Financial Services

The Personal Financial Services business provides adiverserangeofproductsandservicestooveraquarterof a million customers. The diversification of thisbusinessprovedtobearealstrengthin2009.Thelowinterest rateenvironment reducedmarginsonSavingsproducts and this margin compression has resulted ina reduction in profits compared to 2008. However,the bank’s retail business was open for business asusual and recorded growth in Mortgages and Loansto customers whilst maintaining responsible lendingpolicies based largely on customer affordability.Despite fierce competition for Savings and numerouscorporatebondsandequityissues,thebank’spersonalcustomerdepositbaseremainedstable.

WealthManagementisakeyareaofgrowthandiscentredonHSBC’suniqueGlobalPremierpropositionwhich is aimed at the bank’s customers who haveinvestmentneedsbothinMaltaandoverseas.PremierdeliverssuperiorservicethroughdedicatedrelationshipmanagerswhoaretrainedtomakethemostofPremiercustomers’ money. The bank’s Financial PlanningAdvisorshavehadachallengingtimeduring2009dueto volatility in the investment markets. The marketenvironmentrequiredabalancebetweenamoreprudentapproach towards themanagementofcustomerassetsandactiveportfoliomanagement.

HSBC’sTrustbusinesscontinues tobe themarketleader and we have more than doubled assets under

managementduringtheyear.OurgrowingreputationintheTrustbusinessprovidesagreatopportunitytogrowbothfromourexistingcustomerbaseinMaltaandfromoverseas customers, many of whom are introducedfromthewiderHSBCGroup.

Insuranceperformancewasrobustinachallengingenvironment for investment and protection sales andsales volumes were ahead of prior year. Investmentperformance picked up during the second half of theyearandthishasenabledreservestobestrengthened.

Commercial Banking

TheCommercialbankingbusinesshadaverysuccessfulyearacrossalldisciplines,despitethedifficultmarketconditionsandthedeterioratingeconomy.

During2009,theassetbookwasre-pricedtobetterreflect risk, the increasing cost of capital and thescarcityofliquidityinthemarketingeneral.Althoughwe have seen a reduction in requests for real estatelending, directly reflecting a slowdown in the sectorand the economy, we have seen a continued increasein requests for working capital funding, primarilyvia invoice financewhichcontinues togrow,andhasdeliveredrecordprofitsin2009.

The Leading International Business strategycontinuestogathermomentumandweweredelightedtohavesignedatwoyearsponsorshipdealwithMaltaEnterprise to support their overseas trade missions.Senior members of the Commercial Banking teamjoinedMaltesebusinessandMinisterialdelegationstoPoland, Czech Republic, Qatar, Libya and India. Weare pleased that we have been able to play a pivotalroleinpromoting‘MaltaInc’tokeycurrent,andfuture

Chief Executive Officer’s Review (continued)

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CEO Alan Richards addressing Premier customers during a seminar organised to celebrate HSBC Premier’s � years in Malta.

enjoyed particular success in corporate bond fundswhich have enjoyed strong returns as markets havestabilised.Ourwellqualified investmentexpertshaveaccess to the full research and analytical resourcesfrom across HSBC Group which is then tailored tosupportourlocalteamofinvestmentadvisors.

TheGlobalBankingandMarketsdivisionrepresentsakeygrowthareaforHSBCinMalta.Weareconfidentthat our local retail, private client, corporate andinstitutional customers will increasingly benefit fromthe services that we can offer as part of the HSBCGroup. We will also play a key role in promotingMalta’sgrowthasafinancialservicescentre.

People

If I had to pick out one highlight for the year, it hasbeen the way in which our staff have rallied roundasa team tohelpmanage thebank through theworsteconomiccrisis inlivingmemory.OurstaffofcourseremainourgreatestassetandwecontinuetoinvestininitiativesdesignedtomakeHSBCBankMaltathebestplacetowork.Theseinitiativesincluderevisionstoourperformancepaysystem,improvedcareeradvancementopportunities, a renewed focus on talent managementand ongoing training and development programmes.2009 also saw a number of colleagues leave theorganisation through a voluntary redundancy schemeand I would like to sincerely thank those leavers fortheircontributiontoHSBCovertheyears.

As part of our talent management strategy wehave a number of employees seconded on overseasassignments and we will continue with a rollingprogrammein2010.

tradingpartners, andhavebeenable to ‘match-make’betweenmanyofourMalteseandoverseasclients.

We remain supportive of the micro and smallbusiness sectors and have seen growth in demandfor our on-line Business Direct service. The §100millionSmallBusinessFundhascontinuedtobeusedto support the key SME segment which will be animportantcatalystfordrivingeconomicrecovery.

We are anticipating a continued slowdown in theeconomy in the first half of 2010, but will continueto work closely with all of our commercial clients toprovidehelpandsupportwhereverwecan.

Global Banking and Markets

GlobalBankingandMarketscontinuestosuccessfullydeliveronitsstrategytoofferbestinclassservicestoour local and international customers. Drawing uponexpertise,bestpractice and leadingedge technologiesfrom across HSBC Group, we are well positioned toplay a pivotal role in the growth of Malta’s financialservicessector.

The Treasury and Capital markets team haseffectively managed the bank’s liquidity position andinvestmentstoensurethatthebankhasescapedlargelyunscathedfromtheglobalfinancialcrisis.TheGlobalBanking and Markets team has focused its energy onproviding an increasing range of hedging productswhich enable our customers to better protect againstcurrencyandinterestraterisks.

Our Stockbroking subsidiary remains a leadingplayer in thedevelopmentofMalta’scapitalmarkets.Wehavebeenappointedleadmanagerandregistrarforanumberofsuccessfulbondissuesandhaveprovidedspecialist corporate advisory services on cross-bordertransactions.

Both our Custody and Fund Administrationbusinesses have enjoyed strong performances,winningnewcustomermandatesasMaltabecomesanincreasingly important player in the global financialsector. These businesses draw support from HSBC’sglobal expertise and continue to invest in technologyandstafftrainingtohelpsupporttheincreasinggrowthin thenumberoffundschoosingMaltaasadomicile.HSBC Security Services (Malta) Ltd spearheaded thelaunchoftheWorldSelectionFundinMalta–oneofHSBC’sglobalproducts tailored to theneedsof localinvestors.

Whilst 2009 was another challenging year forthe fund management industry, HSBC Global AssetManagement (Malta) Ltd maintained its focus onactively managing its bond and equity funds togetherwith its individually managed portfolios. We have

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“Our people have been magnificent throughout �009 in helping to manage the bank through the worst economic crisis in living memory.”

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Outlook

The unprecedented global financial and economicupheaval has clearly impacted the Maltese economy,although Malta has fared better than many of itsEuropeancounterparts.

Whilst there are clear signs of markets stabilisinginternationally,theoutlookfortheMalteseeconomyandgeneral impairmentlevelsin2010remainchallenging.Wearenotyetoutofthewoodsandforecastsshowthattheeconomywillrecoveronlyslowly.

Our plans and priorities for 2010 have alreadybeenestablishedandwewill strive tobetterserveourcustomers,optimiserevenuestreams,continuetoinvestin our people, enhance our risk management policiesandtransformthebankthroughanumberofsignificantinfrastructureprojects.

Competitionisincreasinganditisimportantthatwecontinue to emphasise our competitive advantages inthe localmarket as an international bank.Wehave tofocusonthoseareaswherewehaveanaturaladvantagethankstoourbrand,uniqueinternationalfranchise,andGrouptechnologyandsystems.

Wealsohave to ride thewaveofMalta’sgrowingfinancialservicessectorasitdevelopsandwearewellplacedtosupportthisgovernment-ledinitiative.

There isa lot tobedoneand2010willbeanotherchallengingyear.However,weareinapositionofrealstrength and well placed to achieve our goals and toremainMalta’sleadingprovideroffinancialservices.

AlanRichards,ChiefExecutiveOfficer22February2010

We have good relations with the trade unions andwill continue to work with the unions to improve theworkingenvironmentwhereverpossible.

Ithinkitisfitting,tomentionthatMrCharlesJohnFarrugia, who until recently was our Head of GlobalBanking and Markets has retired from the bank aftera long and distinguished career. I am delighted MrFarrugiahasagreedtoremainontheBoardofDirectorsandthatwewillcontinuetobenefitfromhisexperienceandwisecounselintheyearstocome.

Our strong performance in a very difficultenvironment in 2009 is testament to the talent anddedication of the team at HSBC and I would like tothank them all for their contribution during such adifficultyear.

Awards

Itisbefittingthattomarkitstenthanniversaryoflocaloperations,HSBCBankMaltahasbeennamedBankoftheYearinMaltafor2009bytheprestigiousFinancialTimes monthly publication The Banker in recognitionfor the best overall performance. Furthermore, HSBCBankMaltaalsowontheGlobalFinanceawardsforthecategories‘BestBankinMalta’andoneofthe‘World’sBestInternetBanks’.GlobalCustodian,anotherleadinginternational publication covering global securitiesservices business, also honoured HSBC Bank Maltawithanawardforexcellence.

Chief Executive Officer’s Review (continued)

Alan Richards, CEO HSBC Bank Malta receiving The Banker �009Bank of the Year Award from Stephen Timewell, Editor-in-Chief of The Banker (left) and British journalist and TV broadcaster Michael Buerk (right).

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Chief Technology and Services Officer’s Review

2009wasoneof themost challengingyears in livingmemory. Besides having to deal with the difficultmarket conditions, low interest rate environment andeconomicslowdownwewerecommittedtoensurethatwecontinuedtoinvestinandleadthroughtechnology,toimproveproductivityandtodelivertheefficientandhighqualityservice forwhichweare renowned.Thisnecessitated completing a number of projects, someofwhichweremandatory,continuingtoautomateourprocessestoextractoperationalefficiencies,andabovealltoprovideabettercustomerexperienceinourday-to-dayoperations.

Throughoutatimeofunprecedentedglobalturmoilwe have managed to deliver sustained cost savingswhilst improving productivity and process efficiency.Allthiswasachievedthroughtheprofessionalismandcommitment of our employees, to whom I am trulygrateful.

Operations – Technology and Service Delivery

In line with one of the HSBC Group’s global pillarsof Leading through Technology, we have taken greatstridesforwardinjoiningupwiththerestoftheHSBCGroup.In2009westeppedupthepaceonourjourneyofalignmentunderOneHSBC:aGroup-wideprogrammeto standardise all systems,products andprocesses forthe benefit of our customers, staff and shareholders.BeingabletoleverageoffthecapabilitiesandstrengthsofHSBCGroup isadifferentiatingfeatureforHSBCBank Malta. It gives us unparalleled opportunitiesto extract sustainable cost benefits and processefficiencieswhilstbenchmarkingcustomerexperienceagainst world-class service standards. Standardisationand simplification is a cornerstone of this strategy toimproveourproductivityandincreaseouroperationalefficiencies: ensuring that we use Group systems totheir full functionality so that we are delivering whatour customers want at most convenience to them. In

fact, benefits of this investment include the alreadylaunched Global Accounts View and Me2Me for ourPremier customers, where they have the ability in asingle“session”onPersonalInternetBankingtoviewandtransactontheiraccountsheldwithHSBCacrosstheworld–whereverandwhenevertheywant.

Streamlining and automating our processes hasbeenastrategicpriorityfor2009andwehavetakentheopportunitytomigratesomeofourstandardprocessestoHSBCGroupCentresofExcellence.Thisbringstothebank locally thebenefitsofbeingpartofaglobalGroup: lower cost of production and global “bestin class” processes and service standards. We willcontinue to take opportunities to migrate processeswhere we can achieve “best in class” standardisedproductionefficienciesandcustomerserviceexcellencewhilstretainingrobustcontrols.

Providing 24x7 service delivery channels is akey strategic imperative. We continued to invest inour Internet Banking service to ensure that we offermainstreambankingtoourcustomersatatimethatsuitsthem.Wehaveincreasedthenumberofcoreproductsthatcanbeappliedforandopenedonline–providingcustomers with the fastest and most convenientservicepossiblewhilstdeliveringoperationalandcostefficiency for thebank.Wewill continue to invest insystemsandre-engineerourprocessessothatourcoreproducts are immediately available for our customerson-linethroughInternetBanking.

TelephoneBankingcontinues tobeakeydeliverychannel for the bank and in 2009 we launched theprovisionofLifecovertoourcustomerstelephonically:providing immediate cover at our customers’convenience. We continued to invest in automatingtelephone banking services, enabling our customersto solve a number of their routine banking enquiries,suchasbalance information,at the touchofabutton.Not only is this more convenient for our customers,

but italsoenhances thebank’soperationalefficiency.Importantly,ithasalsoenabledourCallCentreagentsto take a more proactive role in enhancing customerexperiencethroughundertakingfinancialreviewswithourcustomersoverthetelephone–atatimethatsuitsourcustomersratherthanhavingtogotoabranch.Thiswaywearegetting toknowourcustomersbetterandsupporting their value-added financial needs beyondtheconstraintsofbranchhours.

Throughout theyearwecontinued to invest inourbranch network in our ongoing pursuit of improvingcustomer experience. We upgraded our facilities forPremierclientsineightofourbranchesandlaunchedaPremierCentreatSt.JuliansBranch:allwithdedicatedstaff to support our Premier clients. Similarly, as theLeading International Bank in Malta, we installedBusiness Banking Zones in all our branches to showthat, in addition to our Business Banking Centre inQormi,ourbranchesareopen forbusiness to supportour commercial customers with their transactionalbankingrequirements.

SelfServiceBankingisakeytenetofourbankingproposition and we have invested in our ATMs toensurecompliancewiththePaymentServicesDirectivethatbecameeffectiveon1November2009.Wehavealso commenced a rolling programme to upgrade ourentireATMstockoverthenexttwoyears.

Projects

To achieve our commitment to deliver world-classstandardsforourcustomersbyinvestingintechnology,improving productivity, delivering service qualityexcellenceand robustcontrols, it is inevitable thatweareinvolvedinvariousprojects:2009wasnodifferent.

Theseprojectsvarysignificantlyinnature.In2009,aspartof theGroup’sOneHSBC initiative,wehaveembarked upon a programme to migrate our coresystemsontotheGroup’sGoldSuiteplatform.

We also continued to promote Malta as a Centreof Excellence for Group mid-office processing work.In2009wemigratedworktoMalta tosupportHSBC

Chief Technology and Services Officer’s Review (continued)

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businessesinIrelandandBermuda.

2009 saw the implementation of the mandatoryPaymentsServicesDirective.PuttingpaymentsontothesameframeworkacrossEuropeentailedverycomplexproject work. The bank took an active role as partof the Group’s European project team, co-ordinatedthrough theUnitedKingdomandFrance. In linewithall European HSBC operations, the bank was fullycompliant with the new legislation and regulatoryrequirementsastheybecameeffectiveon1November.

Anotherregulatoryrequirementwasthesubmissionofour InternalCapitalAdequacyAssessmentProcessreportunderBaselIIcapitalrequirements.Thisinvolvedundertaking a number of stress testing exercises andscenario analysis on our capital requirements andliquidity levels and assessing all types of risk. I ampleased to confirm that our organisation is in robustshapeandsatisfiesall thecriteriaofasoundfinancialinstitution,wellplacedtowithstandstressconditions.

We are also constantly involved in projects ofa local nature as part of our ongoing programme toenhancecustomerexperience.

Service and Operational Quality

Systemsup-times,accuracyandspeedofturnaroundareoffundamentalimportancetosustainingourcompetitiveadvantage and standards of service excellence. In2009 we achieved 99 per cent 24x7 systems up-times.Similarly, through all the change and pressures,we retained operational and financial integrity bymaintaining the highest reputational standards in thefinancial services sectorasevidencedbyexternalandGroupaudits.

Delivering and enhancing our risk controlmechanismscontinuedtobeakeypriorityandinthisrespect we embarked upon a roll-out programme tointroduceChip&Pintechnologytoallthecardsweissuetoupgradesecurityandreducefraud losses.Similarlywe have put in place state-of-the-art mechanisms tocounteract fraud inotherareasofouroperationssuchasourcardsacquiringbusiness.Theseinitiativeshavegone extremely well and, coupled with our MobileBankingserviceswhichare increasinglypopularwithourcustomersasanalertmechanismforpossiblefraudattempts, the bank was able to significantly reduceoperationallossesin2009.

Our Technology and Support Services Team

While having the latest processes and state-of-the-arttechnologyisbeneficial,thesewouldbefutilewithouttheknowledge,expertiseandhardworkofourstaff.Itis our people not our systems that drive our businessforward.Thesuccesswehaveachievedwouldnothavebeenpossibleotherwise.

The new Premier Centre at St. Julians Branch

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Our people have shown unparalleled strength,resilience, determination, and team spirit to drivethe bank’s technology, operational processes andsupport services forward to ensure the bank is moreoperationally efficient, delivering sustainable costsavings and maintaining robust service standards forourcustomers.

That is why in 2009 we continued to invest inour people, provided better career opportunities,implementedmorefamilyfriendlypoliciesandimprovedtheworkingenvironmentwhereverwecould.WealsoweredelightedthatmoreofourGroupcolleaguesjoinedusasmembersofour teamsoffshore.ThisenabledustogivenewopportunitiestoourMaltesestafftosupportourBusinessgrowthareaslocally.OuraimistomakeHSBC the Best Place to Work in Malta and the highengagement score in our recent Global people surveyconfirmsthatwearedoingjustthat.

Whilewealwaysworkasateamandseeksynergiesby being joined up across the Group, it is also worthmentioning individual achievements where merited.Our sincere appreciation, therefore, goes to PatrickGauciwhowasawardedthetitleofWorld’sLocalHerobyourGroupChiefExecutive,MikeGeoghegan,fortheadmirableworkhedidtodetectandstopfraud.Patrickmadeallofusproudandtrulydeservedthisrecognitionfordisplayingthehighestlevelofcommitment,personalimpactandoutstandingactions.

I would also like to thank all our staff for drivingforward our environmental initiatives and reducingcarbonemissionsbyover8percentyearonyearandtothosewhoparticipatedintheHSBCGroupClimateChange Programme. This is commendable and showseveryonethatMaltaisdoingitspartforabetterworldandsustainablefuture.

HSBC Bank Malta employee Patrick Gauci was awarded the title of Local Hero by the HSBC Group for having detected and stopped a fraud transaction from taking place.

Future Outlook

2010 is going to be very exciting and trulytransformational. We have already embarked on amajor change programme which will see us deliver anumberofstrategicinitiativesrequiringhorizontalandcollaborativecommitmentandownershipfromallareasof the bank. The structural framework to achieve thedesired outcomes and to ensure good governance hasalready been put in place. A Programme Director hasbeenappointedandthevariousworkstreamleadersandprojectmanagershavebeenidentified,drawingonthebank’stoptalent.

The successful completion of this dynamic changedelivery programme will definitely leave a positiveimpact on how we function internally and how wedeliver Group “best in class” propositions for ourcustomers. We have a unique competitive advantage.ByharnessingGroupsystemsandCentresofExcellencewewillbeabletodeliverthisbusinesstransformation:reaping sustainable operational efficiencies whilstgrowingourincometodeliversignificantlymorevalueaddedforourshareholders.

By connecting globally and acting locally we arewell placed to strengthen our position as Malta’sLeadingLocalandInternationalBank.

SallyRobson,ChiefTechnologyandServicesOfficer22February2010

Board of Directors

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Albert Mizzi,NON-EXECUTIVECHAIRMAN

Age82.Non-ExecutiveChairmanofHSBCBankMaltap.l.c.sinceJune1999.In1946, joinedfamilybusinessAlf.Mizzi&SonsLtd.andwasChairmanforseveral years. In the 1960s he was heavily involved in private banking andappointed director of Medport. Established a number of Malta’s importantparastatalbusinesses:AirMalta,SeaMalta,Medserv,MediterraneanInsuranceBrokersandMiddleSeaInsurance.FollowingthesettingupofAirMaltain1973,heservedasitsChairmanfor19years.

Alan Richards,DIRECTORANDCHIEFEXECUTIVEOFFICER

Age 50. Director and Chief Executive Officer of HSBC Bank Malta p.l.c.sinceMay2008.ChairmanofHSBC’sLifeCompany,StockbrokingandFundManagementbusinessesinMalta.PriortomovingtoMalta,hewasDeputyChiefExecutiveOfficerforHSBCAustraliabasedinSydney.JoinedHSBCin1984asagraduateentrantandhasalsoworkedforHSBCintheUnitedKingdom,HongKong,MalaysiaandTurkey.

Anthony Mahoney,NON-EXECUTIVEDIRECTOR

Age 47. Group General Manager, Deputy Chief Executive Officer, ContinentalEuropesinceFebruary2010.JoinedMidlandBank(nowHSBCBankplc)in1983andhasoccupiedvariousrolesintheUKBankandEuropeanorganisation.HewasappointedChiefExecutiveOfficer,HSBCBankplc,MaltabranchinJuly1997.InJune1999hewaspromotedtoDirectorandChiefOperatingOfficer,HSBCBankMalta p.l.c. During this time he was Chairman of HSBC Home Loans (Malta)Limited,HSBCFundManagement(Malta)Limited,HSBCLifeAssurance(Malta)Limited,HSBCFinance(Malta)LimitedandHSBCOverseasBank(Malta)Limited.InJune2008heassumedthepositionofHeadofInternational,HSBCBankplc.

Philip Farrugia Randon,NON-EXECUTIVEDIRECTOR

Age60.DirectorofHSBCBankMaltap.l.c.sinceJune2004andNon-ExecutiveDirectorsinceMay2008.GraduatedLL.D.in1973andjoinedthebankin1974asalegaladviser.HeldthepostofCompanySecretaryandthepostofHeadofGroupLegalDepartmentofHSBCBankMaltap.l.c. forseveralyears.RetiredfromthebankinMay2008.

Sally Robson,DIRECTORANDCHIEFTECHNOLOGYANDSERVICESOFFICER

Age 51. Director and Chief Technology and Services Officer of HSBC BankMalta p.l.c. since March 2006. A professional banker and a fellow of theCharteredInstituteofBankers.JoinedthethenMidlandBankplcin1979.Since1983shehasheldanumberofkeymanagerialpositionswithintheHSBCGroupin theUnitedKingdom,with the lastpostheldbeing thatofAreaDirector forGreaterManchester.

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Charles John Farrugia,EXECUTIVEDIRECTOR

Age52.DirectorofHSBCBankMaltap.l.c.sinceNovember2004.Joinedthebank in 1975. Was appointed Chief Dealer in 1995, Group Senior TreasuryManager in 1999 and Managing Director of HSBC Stockbrokers (Malta) Ltdin2001.HeldthepostofHeadofGlobalBankingandMarketsofHSBCBankMalta p.l.c. for several years. Retired from the bank in January 2010 and willcontinuetoserveasaNon-ExecutiveDirector.

Peter Paul Testaferrata Moroni Viani,NON-EXECUTIVEDIRECTOR

Age49.Non-ExecutiveDirectorofHSBCBankMaltap.l.c.sinceMarch2001.HoldsvariousexecutivepositionsanddirectorshipswithintheTestaferrataGroupofcompanies.

Saviour sive Sonny Portelli,NON-EXECUTIVEDIRECTOR

Age65.Non-ExecutiveDirectorofHSBCBankMaltap.l.c.sinceOctober2006.A senior Maltese businessman who is currently the Chairman of The MaltaCouncil for Economic and Social Development. He shall be relinquishing hispostofChairmanofGOplcon10March2010andwilltakeupchairmanshipofAirMaltaplc.

James Dunbar Cousin,NON-EXECUTIVEDIRECTOR

Age 59. Appointed Non-Executive Director of HSBC Bank Malta p.l.c. on1April2009.JoinedBarclaysBankD.C.O.in1968.Occupiedvariousmanagerialroles within the branch network of Mid-Med Bank Limited. Subsequently, heoccupiedtherolesofExecutiveManagerandlaterHeadofCommercialBankingofHSBCBankMaltap.l.c.Retiredfromthebankattheendof2008.

George Brancaleone,COMPANYSECRETARY

Age48.CompanySecretaryofHSBCBankMaltap.l.c.sinceJune2004.Joinedthebankin1980andgraduatedLL.D.in1988.CompanySecretaryofvariousHSBCsubsidiariesinMaltasince2001.PresentlyholdsthepostofSeniorManageratAudit,ComplianceandLegalDepartmentofHSBCBankMaltap.l.c.

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Financial Review

Summary of Financial Performance

Group profitDuringtheyearended31December2009,HSBCBankMaltap.l.c.anditssubsidiariesgeneratedaprofitbeforetaxof§71.2million.Althoughthisrepresentsadeclineof25.9percentcomparedtolastyear,thisisaresilientperformanceinlightofcurrentmarketconditions.

Profitattributabletoshareholderswas§45.9million,adecreaseof§17.2millionoverprioryearfigures.

Netoperating incomeof§159.7million representsadeclineof§28.6millionoverprioryear.Netinterestincomedeclinedby§18.1millionto§105.0million.

Operatingexpenseswere§83.8million,adecreaseof§6.6millionoverprioryear.

The group’s cost to income ratio is 52.5 per centfromaprioryearratioof48.0percent.

A fair value gain of §17.7 million on available-for-sale investment portfolio was reported in Othercomprehensiveincome.

Shareholder ratiosEarningsper share at 15.7 euro cent compare to21.6eurocentforthesameperiodin2008,withthepre-taxreturn on shareholders’ funds at 23.2 per cent downfromaprioryearof34.0percent.

TheDirectorsproposeafinalgrossdividendof8.0eurocentpershare.Thisfollowsonthegross interimdividendof7.7eurocentpaidinAugust2009.

Net interest incomeNet interest income of §105.0 million represents adeclineof14.7percentcomparedto§123.0millionintheprioryearadverselyimpactedbymargincompressioninthecurrentlowinterestrateenvironment.

DespiteagrowthinLoansandadvancestocustomersof§114.2millionor3.7percent to§3,226.5million,interestreceivableonloansandadvancestocustomersdeclined by §36.4 million or 19.9 per cent reflectingmultiple reductions in the European Central BankinterventionratesinceOctober2008.Incomefromdebtsecuritiesdecreasedby§7.8millionor36.5percentto§13.6million.

Thecostof liabilitiesalso fellby§58.4millionor47.7percentbutthiswaslessthanthedeclineinassetyieldsasspreadsnarrowedoverall.

Non-interest incomeNon-interest income of §54.7 million represents adeclineof16.2percentor§10.6millioncomparedto§65.3 million in prior year affected significantly bythecontinuingdownwardpressureon theprofitabilityof insuranceand investment-relatedbusinesswhich isimpactedbythevolatilityinequityandbondmarkets.

Netfeeandcommissionincomeat§32.4millionwasslightlyabove2008levelsof§31.8million.Growthinlending,cardissuanceandusagefees,accountservicesandretailbrokerageactivitieswereoffsetbydeclinesinfeesfromremittancesandsubduedsentimentforretailinvestments.

ThegroupusesthefairvaluedesignationforfinancialassetsheldbyLife insuranceoperationsamountingto§248.6million.Apositivemovementof§26.7millionwas recorded in the fair value of assets held to backinsurance and investment contracts compared witha negative movement of §29.4 million in 2008. Thisreflectedinvestmentgainspredominantlyaffectingthevalueofassetsheldinunit-linkedandwithprofitfunds.The positive movement in fair value is offset by acorrespondingreductioninNetotheroperatingincomeand an increase in Net insurance claims incurred andmovementinpolicyholders’liabilities.

Life insurance activities generated a sound profitbeforetaxof§11.7million,down§4.7millionor28.7per cent compared to 2008 profit before tax of §16.4million.Prioryear’sNetoperatingincomedidhoweverincludeanon-recurringincreaseinPresentvalueofin-forcelong-terminsurancebusinessfollowingactuarialbasisreviewof§3.8million.

Gainsonpropertyrevaluationanddisposalamountingto§3.5millionreportedinNetotheroperatingincomein2008didnotrecurduringthecurrentyear.

Operating expensesOperatingexpensesof§83.8millionwere§6.6millionor 7.3 per cent lower compared to the previous yearwithacosttoincomeratioof52.5percentcomparedto48.0percentin2008.

Employee compensation and benefits decreasedby §6.2 million primarily due to the take up ofvoluntary early retirement schemes during the yearwhichwereprovidedforduring2008andamountedto§5.6million.

General and administrative expenses were slightlybelowprioryearat§27.0millionreflectingthebank’sfocusoncostcontrol.

Depreciation and amortisation charges were stableonprioryearat§7.5million.

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Net impairmentPerformance was affected by §2.3 million increasein loan impairment charges which rose rapidly inthe second half of 2009 from a low base as theconsequences of the slowdown in the local economyimpactedthelendingportfolios.

Impairment reversals contributed §4.5 million toprofitability. New impairment allowances of §7.4million were raised and bad debt write-offs of §1.4millionwereeffected.

Thequalityof theoverall loanbookremainsgoodwithnon-performingloansat2.9percentofnetloans(2008:2.3percent).

TaxationThe2009effective rateof taxwas35.6percent.Taxexpensefor2009amountedto§25.3million.

AssetsTotalassetsamountedto§5,117.8million,3.4percentlowerthanat31December2008.

The proportion of assets deployed in Loans andadvances to customers increased to 63.0 per centfrom58.8percentin2008,whileLoansandadvancesto banks declined to 14.6 per cent and Financialinvestmentsincreasedto9.4percentofTotalassets.

Net loans and advances to customers increasedby §114.2 million supported by growth in both thepersonalandcommercialsectors.

Advances to deposits ratio at 79.0 per cent isconsistentwithprioryearendlevelof77.5percent.

Short term liquidmoneymarketplacements in theform of Loans and advances to banks decreased by§324.6 million to §747.7 million as a result of lowerlendingtootherfinancialinstitutions.

The available-for-sale investment portfolioincreased by §65.4 million to §470.1 million. Thisportfolio reported a fair value gain of §17.7 millionasat31December2009.Themark-upwascreditedtorevaluationreserve,netoftaxeffect.

Life insurance business assets, are primarilydesignated as Financial assets at fair value throughprofitor loss.Thisportfolioreducedby§31.2millionto§248.6millionfromaprioryearendlevelof§279.7million.

LiabilitiesTotalliabilitiesdecreasedby§202.4millionto§4,811.2million.

Amounts owed to customers increased by §70.0million to §4,086.7 million compared to §4,016.6millionduringtheprioryear inaperiodcharacterisedbyanumberofbond issues andgrowingcompetitivepressures.

Amounts owed to banks decreased from a yearopening levelof§462.2million toayearendclosinglevel of §168.8 million reflecting a reduction ininstitutionaldeposits.

Fundsundermanagementbythegroupincreasedtoayearendclosinglevelof§419.0million,upfromanopeningyearlevelof§407.0million.

Liabilitiesunderinsurancecontractsissuedincreasedby §40.3 million during the year to reach a year endlevelof§351.5million.

Shareholders’ fundsEquity totalled §306.6 million at year end followingdividendpaymentsof§32.8millionduring2009.

Thenumberofshareholdersincreasedfrom10,143to10,362asat31December.

The capital adequacy ratio, on a Basel II basis,remained strong at 11.8 per cent and is in excess ofregulatorycapitalrequirements.

Report of the Directors

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Results for 2009

Thegroupreportedaprofitonordinaryactivitiesbeforetaxof§71.2millionfortheyearunderreview.Thegroup’sprofitattributabletoshareholdersofthebankwas§45.9million.

Agross interimordinarydividendof7.7eurocentwaspaidon27August2009.TheDirectorshaveproposedagrossfinaldividendof8.0eurocentperordinaryshare.Thefinaldividendwillbepayabletoshareholdersonthebank’sregisterasat4March2010.

Furtherinformationabouttheresultsisprovidedinthegroupincomestatementonpage26.

Principal activities

Principal activities of parent companyThebankisauthorisedtocarryonthebusinessofbankingundertheBankingAct,1994asacreditinstitution.ItisalsoanauthoriseddealerintermsoftheExchangeControlActandalicensedfinancialintermediaryintermsoftheFinancialMarketsAct,1990.ThebankalsoholdsCategory3andCategory4InvestmentServiceslicensesissuedbytheMaltaFinancialServicesAuthorityintermsoftheInvestmentServicesAct,1994.Theselicensesauthorisethebanktoprovidebothinvestmentservicestothirdpartiesandtrusteeorcustodianservicesforcollectiveinvestmentschemes.

Thebankprovidesacomprehensiverangeofbankingandfinancialrelatedservices.

The bank had the following subsidiaries at 31 December 2009: HSBC Life Assurance (Malta) Limited, HSBCGlobal Asset Management (Malta) Limited, HSBC Securities Services (Malta) Limited and HSBC Stockbrokers(Malta)Limited.

Principal activities of subsidiariesHSBCLifeAssurance(Malta)Limited isauthorisedbytheMaltaFinancialServicesAuthority tocarryonbusinessofinsuranceinMaltaundertheInsuranceBusinessAct,1998.HSBCBankMaltap.l.c.isenrolledasatiedinsuranceintermediaryforHSBCLifeAssurance(Malta)LimitedundertheInsuranceAct2006.

HSBCGlobalAssetManagement (Malta)Limited is the investmentmanagementarmof thebank. Itmanagesarange of domestic and international funds, specialising in the development of structured capital secured investmentproducts,andintheprovisionof tailor-madediscretionaryportfoliomanagementservices.ThecompanyoffersbothOpenandCloseendedtypesoffundsandinvestments.

HSBCSecuritiesServices(Malta)LimitedislicensedundertheInvestmentServicesAct,1994anditsmainbusinessactivityistheprovisionoffundadministrationservicestoproprietaryandthirdpartyinvestmentfunds.Italsoprovidesbackofficesupport toHSBCBankMaltap.l.c. in thedistributionof thirdparty investment funds through thebanknetwork.

HSBC Stockbrokers (Malta) Limited is a member of the Malta Stock Exchange and is regulated under theInvestment Services Act, 1994 by the Malta Financial Services Authority. The company is principally engaged inprovidingstockbrokingbusinessontheMaltaStockExchangeandtoarrange/supportthelistingofstocksandsharesontheExchange.

Business review

Areviewofthebusinessofthebankanditssubsidiariesduringtheyearunderreviewandanindicationoflikelyfuturedevelopmentsaregiveninthe‘ChiefExecutiveOfficer’sReview’onpages5to8and‘ChiefTechnologyandServicesOfficer’sReview’onpages9to11.

Transactions in own shares

Thebankholdsunitsinamutualfundwhichinvestsinthebank’sshares.Duringtheyear,thebankindirectlydisposed11,523ownsharesbringingthetotalnumberofsharesindirectlyheldat31December2009to50,052.

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Shareholder Register Information pursuant to Listing Rule 9.43

HSBCBankMaltap.l.c.(the‘bank’)authorisedsharecapitalis§141,000,000.Theissuedandfullypaidupcapitalis§87,552,000divided into291,840,000OrdinarySharesofanominalvalueof30.0eurocenteach.The issuedsharecapitalconsistsofoneclassofordinaryshareswithequalvotingrightsattachedandfreelytransferable.

HSBCEuropeB.V.holds70.03%ofthebank’sshares.

Thelargestsingleshareholderofthecompany,provideditholdsatleastthirtythreepercent(33%)oftheordinaryissuedsharecapitalofthecompany,shallbeentitledtoappointtheChairmanfromamongsttheDirectorsappointedorelectedtotheBoard.

Every shareholder owning eleven per cent of the ordinary issued share capital, shall be entitled to appoint oneDirector for each and every eleven per cent of the ordinary issued share capital of the company owned by suchshareholder.AnyfractionalshareholdingnotsoutilisedintheappointmentofDirector(s)shallbeentitledtoparticipateinthevotingfortheelectionoffurtherDirectors.

There isanAchievementShares scheme inexistencewherebyemployees in theGCB4gradeandhighercanbeawardedshares inHSBCBankHoldingsplc,dependingon theirperformance.Shareawardswillbe released to theindividual after 3 years, provided participant remains continuously employed within the Group. During the 3-yearperiodtheemployeehasnovotingrightswhatsoever.

TherulesgoverningtheappointmentofBoardmembersarecontainedinthebank’sArticlesofAssociation,Articles77 to80.Anextraordinaryresolutionapprovedby theshareholders in thegeneralmeeting is required toamend theArticlesofAssociation.

ThepowersoftheDirectorsareoutlinedinArticles73,74and85ofthebank’sArticlesofAssociation.IntermsofArticle12ofsaidArticlesofAssociationthebankmay,subjecttotheprovisionsoftheCompaniesAct1995,acquireorholdanyofitsshares.

TheCollectiveAgreement regulates redundancies,early retirement, resignationor terminationofemploymentofemployees.TherearenocontractsbetweenthebankandtheDirectorsonthebank’sBoard.

Itisherebydeclaredthat,asat31December2009,therequirementspursuanttoListingRules9.43.7and9.43.10didnotapplytothebank.

Shareholder Register Information

Directors’interestinthesharecapitalofthecompanyorinrelatedcompaniesat31December2009:

AlbertMizzi 8,000sharesSavioursiveSonnyPortelli 4,700sharesPhilipFarrugiaRandon 6,400shares

MrCharles JohnFarrugiahasanon-beneficial interestof7,511,587ordinary shares inHSBCBankMaltap.l.c.throughtheshareholdingheldbyAmalgamatedInvestmentsSicavp.l.c.

MrPeterPaulTestaferrataMoroniVianihasabeneficialinterestof58,800ordinarysharesinHSBCBankMaltap.l.c. throughtheshareholdingofMacAppsLimited,40,000ordinarysharesthroughtheshareholdingofCappsLtd,40,000ordinarysharesthroughtheshareholdingofVianiLimitedand5,000ordinarysharesthroughtheshareholdingofCirclesLimited.Healsohasanon-beneficialinterestof130,680ordinarysharesinHSBCBankMaltap.l.c.throughtheshareholdingofSantumasShareholdingsp.l.c.

TherewerenochangestoDirectors’interestfrom31December2009to17February2010.

Shareholdersholdingfivepercent(5%)ormoreoftheequitycapitalat17February2010:

HSBCEuropeB.V. 70.03%

Numberofshareholdersat17February2010:

Oneclassofshares 10,396shareholders(Allshareshaveequalvotingrights)

Report of the Directors (continued)

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Number of shareholders analysed by range

31December2009 16Fe17February20102009 ___________________________________________ ___________________________________________

Rangeofshareholding Totalshareholders Shares Totalshareholders Shares

1–500 2,153 669,342 2,162 674,113501–1,000 1,625 1,317,410 1,628 1,317,7861,001–5,000 4,136 10,369,833 4,144 10,382,0125,001andover 2,448 279,483,415 2,462 279,466,089

Standard licence conditions

InaccordancewiththeInvestmentServicesRulesForInvestmentServicesProvidersregulatedbytheMaltaFinancialServices Authority, licence holders are required to include in the Directors’ Report breaches of standard licenceconditionsorotherregulatoryrequirements.Accordingly,theDirectorsconfirmthatnobreachesofthestandardlicenceconditionsandnootherbreachofregulatoryrequirements,whichweresubjecttoadministrativepenaltyorregulatorysanctionwerereported.

Board of Directors

TheDirectorswhoservedduringtheyearareasfollows:

AlbertMizzi(Chairman) CharlesJohnFarrugiaAlanRichards VictorScicluna(resigned1April2009)SallyRobson PeterPaulTestaferrataMoroniVianiAnthonyMahoney SavioursiveSonnyPortelliPhilipFarrugiaRandon JamesDunbarCousin(appointed1April2009)

Senior management

Asat31December2009,theseniormanagementofthegroupwascomposedofthefollowing:

AlanRichards ChiefExecutiveOfficerSallyRobson ChiefTechnologyandServicesOfficerCharlesJohnFarrugia HeadofGlobalBankingandMarketsChrisBond DesignateHeadofGlobalBankingandMarketsRichardCottell HeadofCommercialBankingAndrewRipley HeadofPersonalFinancialServicesAlasdairRobertson HeadofCreditPhilipFarrugia HeadofBankingServicesMarkSims HeadofHumanResourcesJohnSammut HeadofAudit,ComplianceandLegalJosephBorg HeadofITDavidDemarco ChiefFinancialOfficerBrianTortell HeadofMarketingPeterCalleya HeadofStrategicPlanningJosefCamilleri HeadofPublicAffairsandCSRRichardPhilipJones HeadofInsuranceServicesMartinScicluna HeadofWealthManagementCharlesAzzopardi HeadofFundsAdministrationRayBriffa HeadofBranchBankingandDirectChannelsStephenPandolfino DeputyHeadofGlobalBankingandMarketsReubenFenech HeadofGlobalAssetManagementMichelCordina DeputyHeadofCommercialBankingNicolòBaldacchinoOrland HeadofCustomerExperienceandDeputyHeadofServiceDelivery

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Auditors

KPMGhaveexpressedtheirwillingnesstocontinueinoffice.AresolutionproposingthereappointmentofKPMGasauditorsofthebankwillbesubmittedattheforthcomingAnnualGeneralMeeting.

Statement by the Directors pursuant to Listing Rule 9.44c

We,theundersigned,declarethattothebestofourknowledge,thefinancialstatementspreparedinaccordancewiththerequirementsofInternationalFinancialReportingStandardsasadoptedbytheEUgiveatrueandfairviewoftheassets,liabilities,financialpositionandprofitorlossofthebankanditssubsidiariesincludedintheconsolidationtakenasawholeandthatthisreportincludesafairreviewofthedevelopmentandperformanceofthebusinessandthepositionofthebankanditssubsidiariesincludedintheconsolidationtakenasawhole,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheyface.

SignedonbehalfoftheBoardon22February2010by:

AlbertMizzi,Chairman AlanRichards,ChiefExecutiveOfficer

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As required by the Listing Rules of the Listing Authority, HSBC Bank Malta p.l.c. (the ‘bank’) hereby includes aStatementofCompliancewhichdealswiththeextenttowhichthebankhasadoptedtheCodeofPrinciplesofGoodCorporateGovernance(the‘Principles’)andtheeffectivemeasuresthatthebankhastakentoensurecompliancewiththesePrinciples.

Compliance with the Principles

AlthoughthePrinciplesarenotmandatory,theBoardofDirectors(the‘Board’)ofthebankbelievesintheiradoption,andhasendorsedthemexceptwherethereexistparticularcircumstancesthatwarrantnon-adherencethereto.

In line with the Principles, the Board’s composition is a mixture of a non-executive Chairman, three executiveDirectors,fivenon-executiveDirectors,threeofwhomaredeemedtobeindependent.AlltheDirectors,individuallyandcollectively, areof theappropriatecalibre,with thenecessary skills andexperience toassist them inprovidingleadership,integrityandjudgementindirectingthebank.Furthermore,therolesoftheChiefExecutiveOfficerandtheChairmanareseparate.

Internal control

TheBoardisultimatelyresponsibleforthebank’ssystemofinternalcontrolandforreviewingitseffectiveness.Suchproceduresaredesignedtomanageratherthantoeliminatetheriskoffailure,toachievebusinessobjectivesandcanonlyprovidereasonableandnotabsoluteassuranceagainstmaterialerror,lossesorfraud.

– AuthoritytooperatethebankisdelegatedtotheChiefExecutiveOfficerwithinthelimitssetbytheBoardofthebank.Functional,operatingandfinancialreportingstandardsareapplicablewithinallentitiesoftheHSBCGroup.Thesearesupplementedbyoperatingstandardssetbythebank’smanagement,asrequired.

– Systemsandproceduresareinplaceinthebanktoidentify,controlandtoreportonthemajorrisksincludingcredit,changesinthemarketpricesoffinancialinstruments,liquidity,operationalerrorandfraud.ExposuretotheserisksismonitoredbytheAssetandLiabilityManagementCommitteeandbytheRiskManagementCommittee.

– Comprehensiveannualfinancialplansareprepared,reviewedandapprovedbytheBoard.Resultsaremonitoredandreportsonprogresscomparedwithplanarepreparedmonthly.Financialaccountingandreportingandcertainmanagement reporting standards have been established. Centralised functional control is exercised over allcomputersystemdevelopmentsandoperations.Commonsystemsareemployedwherepossibleforsimilarbusinessprocesses.

– Responsibilitiesforfinancialperformanceagainstplansandforcapitalexpenditure,creditexposuresandmarketriskexposuresaredelegatedwithlimitstolinemanagement.Inaddition,functionalmanagementinthebankhasbeengiventheresponsibilitytoimplementHSBCpolicies,proceduresandstandardsintheareasoffinance;legalandregulatorycompliance;internalaudit;humanresources;credit;marketrisk;operationalrisk;computersystemsandoperations;propertymanagement;andforcertainHSBCGroupbusinessandproductlines.

– Theinternalauditfunctionmonitorscompliancewithpoliciesandstandardsandtheeffectivenessofinternalcontrolstructureswithinthebankanditssubsidiaries.Theworkoftheinternalauditfunctionfocusesonareasofgreatestriskasdeterminedbyariskmanagementapproach.

– The bank’s Compliance Department ensures that HSBC Bank Malta group complies with all the local andinternationalregulatoryobligationsandHSBCGroupstandardsandregulations.

ThroughtheAuditCommittee,theBoardreviewstheprocessesandprocedurestoensuretheeffectivenessofthesystemofinternalcontrolofthebankanditssubsidiaries,whicharemonitoredbyinternalaudit.

Statement of Compliance with the Principles of Good Corporate Governance

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Appointment/election of Directors

TheMemorandumofAssociationofthebankspecificallyregulatestheappointmentofDirectors.TheBoardconsistsof not more than nine Directors who are appointed/elected by the shareholders. Unless appointed for a shorter orlongerperiodbutnotexceedingthreeyearsaDirectorshallholdofficefromtheendofoneAnnualGeneralMeetingtotheendofthenext.EveryshareholderowningelevenpercentoftheordinarysharecapitalisentitledtoappointoneDirectorforeachelevenpercentshareholding.ThemajorityshareholderthereforehastherighttoappointsixDirectors.Furthermore,anyexcessfractionalshareholdingnotsoutilisedmaybeusedtoparticipateinthevotingfortheelectionof furtherDirectors.Shareholderswhoown less thanelevenpercentof theordinarysharecapitalparticipate in theelectionoftheremainingthreeDirectors.

Thelargestsingleshareholder(subjecttoaminimumthirty-threepercentholdingoftheordinaryissuedsharecapitalofthecompany),isentitledtoappointaChairmanfromamongsttheDirectorsappointedorelectedtotheBoard.EverypollfortheelectionofDirectorsisoverseenbythebank’sexternalauditors.

Responsibilities of the Board

TheBoardmeetsquarterlytoreviewandevaluatecorporatestrategy,majoroperationalandfinancialplans,riskpolicy,financialperformanceobjectivesandmonitorimplementationandcorporateperformancewithintheparametersofallrelevantlaws,regulationsandcodesofbestbusinesspractice.

The Board has delegated specific authority to the Chief Executive Officer to manage the activities of the bankwithinthelimitssetbyit.Inlinewiththenatureanddemandsofthebank’sbusiness,theBoardmeetsatleasteveryquarterunlessfurthermeetingsarerequired.UnderthepresentcircumstancestheBoarddoesnotconsideritnecessarytoappointacommitteetocarryoutaperformanceevaluationofitsroleastheBoard’sperformanceisalwaysunderthescrutinyoftheshareholdersandinlinewithGroupstandards.

Directors’AttendanceatBoardMeetings:

Members Attended

AlbertMizzi 4

AlanRichards 4

SallyRobson 4

CharlesJohnFarrugia 4

AnthonyMahoney 3(outof4)

PhilipFarrugiaRandon 4

VictorScicluna(resigned1April2009) 1(outof1)

PeterPaulTestaferrataMoroniViani 4

SavioursiveSonnyPortelli 4

JamesDunbarCousin(appointed1April2009) 3(outof3)

Directorshaveaccesstoindependentlegaladviceatthebank’sexpensewheretheBoarddeemsappropriate.TheBoardconcentratesprimarilyonstrategy,policysetting,businessplansandfinancialinformation.

OnjoiningtheBoard,aDirectorisprovidedwithahandbookcontainingthemainprovisionsoflaw,whichregulatehisoffice.TheDirectoralsoattendsapresentationmadebythefunctionalheadsontheactivitiesoftheirrespectivebusinessunitsinthebank.TheDirectorsalsoreceiveupdatesonchanges,ifany,togroup’sshorttermstrategicandoperationalplansandquarterlyupdatesbytheHeadsofAuditandCompliance,CreditandMarketing.

The Board considers appropriate schemes to recruit, retain and motivate high quality executive officers andmanagement team.Thebankcontinues tovaluediversitywithinitsworkforce.Several initiativesarebeingtakentofurtherprogressstaff’sdevelopment,amongstthemSpringboard,NavigatorandBridgetoSuccessprogrammes.

Directors’ dealings

OnjoiningtheBoardandregularlythereafter,DirectorsareinformedandremindedoftheirobligationsondealinginsecuritiesofthebankwithintheparametersoflawandtheListingRules.AproperprocedureofreportingadvancednoticeshasbeenendorsedbytheBoardinlinewiththePrinciples,theListingRulesandtheinternalcodeofdealing.

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Committees

Executive committee (EXCO)Theexecutivecommitteemeetsonamonthlybasistooverseetheoverallmanagementofthebank.TheChiefExecutiveOfficerchairsthiscommitteewhichiscomposedoftheChiefTechnologyandServicesOfficertogetherwiththetopmanagementofthebank.

Asset and liability management committee (ALCO)ThiscommitteereviewsthefinancialrisksofthegroupinMaltaandensurestheirprudentmanagement:interestraterisk,liquidityandfundingrisk,foreignexchangerisk,capitalsolvency,marketsectorriskandcountryrisk.Furthermore,ALCO monitors the external environment and measures the impact on profitability of factors such as interest ratevolatility,marketliquidity,exchangeratevolatility,monetaryandfiscalpoliciesandcompetitorbanksactivity.

The Chief Executive Officer has primary responsibility for ensuring efficient development of asset and liabilitymanagement. Membership consists of senior executives with responsibility for the following functions: corporatebanking, retailbanking, treasury, financialcontrol,marketingandcredit.TheALCO,which ischairedby theChiefExecutiveOfficeranddeputisedbytheChiefTechnologyandServicesOfficer,meetsonceamonth.

Credit risk management committeeThiscommitteereviewsthecreditriskmanagementissuesofthegroupinMalta.Itmeetsonamonthlybasisandischaired by the Chief Executive Officer and deputised by the Chief Technology and Services Officer. Membershipconsists of senior executiveswith responsibility for the following functions: credit and riskmanagement, corporatebanking,retailbanking,treasury,financialcontrol,consumerfinanceandauditandcompliance.

Group risk management committeeThiscommitteereviewstheoperationalrisksofthegroupinMalta:theidentification,measurement,monitoringandcontrollingoperationalbusinessrisksanddeterminesandagreesstrategiesandpoliciestomitigatetheserisks.

Thiscommitteewhichmeetsonamonthlybasis ischairedbytheChiefTechnologyandServicesOfficerandiscomposedoftheChiefFinancialOfficer,theChiefRiskOfficer,theSeniorInternalAuditandComplianceManagerandtheHeadsofBankingServices,CommercialBanking,PersonalFinancialServicesandGlobalBankingandMarkets.

Audit committee Thiscommitteemetfivetimesduringthisyear.ItstermsofreferencearemodelledmainlyontherecommendationsintheCadburyReportandarecompliantwiththeListingRules.AdditionaltermsofreferencehavebeenadoptedbythiscommitteetoalignwithGroup’srequirements.Theprimarypurposeofthiscommitteeistoprotecttheinterestsofthebank’sshareholdersandassistthedirectorsinconductingtheirroleeffectivelysothatthebank’sdecision-makingcapabilityandtheaccuracyofitsreportingandfinancialresultsaremaintainedatahighlevelatalltimes.

TheAuditcommittee,havingbeenapprovedbytheListingAuthorityintermsofListingRule8.72,scrutinisesandmonitorsrelatedpartytransactions.Itconsidersthematerialityandthenatureoftherelatedpartytransactioncarriedoutbythebanktoensurethatthearms’lengthprincipleisadheredtoatalltimes.ItsmembersareMessrsSavioursiveSonnyPortelli(Chairman)andPeterPaulTestaferrataMoroniVianiwhoareindependentnon-executivedirectorsandDrPhilipFarrugiaRandonLL.D.whoisanon-executivedirector.Executivesofthebankareavailabletoattendanyofthemeetingsasdirectedbythecommittee.TheChiefExecutiveOfficer,theChiefTechnologyandServicesOfficerandarepresentativeoftheexternalauditorsattendthemeetings.InlinewithListingRule8.62,theHeadofInternalAuditisalwayspresentforitsmeetingsandhasarightofdirectaccesstotheChairmanofthecommitteeatalltimes.

MrSavioursiveSonnyPortelliwasappointedbytheBoardintermsofListingRule8.56aonthebasisthathehasalonganddistinguishedcareerinbothpubliccompaniesandprivateenterprise.Presently,MrPortelliisalsoChairmanoftheMaltaCouncilforEconomicandSocialDevelopmentandChairmanofGOplc.MrPortellihasservedonthebank’sBoardofDirectorssinceOctober2006wherehiscontributionshavedemonstratedthatheishighlycompetentin accounting and au courant with accounting standards and practices and that he also possesses the qualities andexperiencerequiredtodischargehisdutiesasChairmanofthisCommittee.

Statement of Compliance with the Principles of Good Corporate Governance (continued)

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IntermsofListingRule8.58.7,theAuditcommitteeisresponsiblefordevelopingandimplementingapolicyontheengagementoftheexternalauditortosupplynon-auditservices.SinceHSBCHoldingsplcisaSecuritiesExchangeCommission(SEC)registeredcompany,non-auditservicesprovidedbytheexternalauditorareregulatedintermsoftheSECrules.

Remuneration Committee (REMCO)TheremunerationcommitteeestablishedwithinHSBCBankMaltap.l.c.issetuponasimilarbasistoitscounterpartsintheHSBCGroupandhenceisdifferentincharacterfromthe‘remunerationcommittee’envisagedundertheCodeofPrinciplesofGoodCorporateGovernance.NamelytheBoarddoesnotappointacommitteetofixtheremunerationpackagesoftheindividualDirectors.

ThisremunerationcommitteemeetsprimarilytoreviewthecompensationpolicyofHSBCBankMaltap.l.c.andtomakeannualrecommendationswhicharethensenttoHSBCBankplcforconcurrenceonpayreview,salaryincreasesandbonuses forkeymanagementpersonnel. It ispresentlychairedbyMrAlbertMizzi (independentnon-executiveChairman) and comprises Messrs Peter Paul Testaferrata Moroni Viani, Saviour sive Sonny Portelli and Dr PhilipFarrugiaRandonLL.D.During2009onemeetingwasheldbythiscommittee.

Shareholders

Theprincipalcontactwithshareholderstakesplaceviatheannualandextraordinarygeneralmeetings.Thesemeetingsarecalledwithsufficientnoticeandenabletheuseofproxiestoattend,voteorabstain.Mattersbeforeanextraordinarygeneralmeetingareconsideredextraordinarybusinessandsufficientexplanationoftheproposalsisprovidedinadvanceofthemeetingforproperevaluationbytheshareholders.

Regularcontactwithshareholdersisalsomaintainedviacompanyandmediaannouncements.

Intermsofthebank’sArticlesofAssociation, theDirectorsshallontherequisitionofmembersof thecompanyholdingnotlessthanone-tenthofthepaidupsharecapitalproceeddulytoconveneanextraordinarygeneralmeetingofthecompany.

Corporate Sustainability

HSBC’sCorporateSustainabilityactivitiestakeplacewithinthecontextoftheGroupwidestrategy.InMaltathebankfulfilstheGroup’sCorporateSustainabilitystrategyprimarilythroughthethreecharitablefunds:

–TheHSBCCaresForChildrenFund;

–TheHSBCCaresForTheEnvironmentFund;and

–TheHSBCCaresForMalta’sHeritageFund.

Thesecharitablefundsdealwithissuesthatconcernthepublicingeneral:childreninneed,theenvironmentandMalta’snationalheritage.TheyhavesucceededinhavinganimpactonalargemajorityofMaltesecitizensandshowthebank’sstrongcommitmenttowardssocialinvestment.

Going Concern

As requiredbyListingRule9.44e.13, upondue considerationof thebank’sprofitability and statementof financialposition, capital adequacy and solvency, the Directors confirm the bank’s ability to continue operating as a goingconcernfortheforeseeablefuture.

SignedonbehalfoftheBoardon22February2010by:


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Remuneration Report

NoneoftheDirectorsareemployedwiththebankonadefiniteservicecontract.ThoseDirectorswhoareemployedwiththebankaresoemployedonanindefinitebasis.

Directors’remunerationforthefinancialyearunderreview:

§

–Directors’fees 118,815

–Directors’salariesandbonusesasfull-timebankemployees 404,424

DetailsofDirectors’feesforthefinancialyearunderreviewwereasfollows:

§

AlbertMizzi 31,450VictorScicluna 10,484PeterPaulTestaferrataMoroniViani 21,550SavioursiveSonnyPortelli 25,045PhilipFarrugiaRandon 21,550JamesDunbarCousin 8,736 ____________

Total 118,815 _______Directors’salariesandbonusesarebeingdisclosedinaggregateratherthanasseparatefiguresforeachDirectoras

requiredbythePrinciples.

No Director is entitled to profit sharing, share options, pension benefits (other than performance-related bonusawards)oranyotherremuneration,directlyfromthebank.

ExecutiveDirectorsmaybeentitledtoHSBCHoldingsplcshareoptionsasdetailedinnote13ofthe“NotesontheAccounts”andcertainpensionandearlyretirementbenefits.

TheDirectors’feesareapprovedinaggregatebyshareholdersattheAnnualGeneralMeeting.ThoseDirectorswhoareemployedwiththebankarenotpaidanyfeesfortheirdirectorship.

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Directors’ responsibility for the Financial Statements

TheCompaniesAct,1995requirestheDirectorsofHSBCBankMaltap.l.c.(the‘bank’)topreparefinancialstatementsforeachfinancialperiodwhichgiveatrueandfairviewofthefinancialpositionofthebankandthegroupasattheendofthefinancialperiodandoftheprofitorlossofthebankandthegroupforthatperiodinaccordancewiththerequirementsofInternationalFinancialReportingStandardsasadoptedbytheEU.

TheDirectorsareresponsibleforkeepingproperaccountingrecordswhichdisclosewithreasonableaccuracy,atanytime,thefinancialpositionofthebankandthegroupandtoenablethemtoensurethatthefinancialstatementshavebeenproperlypreparedinaccordancewiththeprovisionsoftheCompaniesAct,1995andtheBankingAct,1994.

TheDirectorsarealsoresponsibleforsafeguardingtheassetsofthegroupandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.

TheDirectors,throughoversightofmanagement,areresponsibletoensurethatthebankestablishesandmaintainsinternal control to provide reasonable assurance with regard to reliability of financial reporting, effectiveness andefficiencyofoperationsandcompliancewithapplicablelawsandregulations.

Management is responsible, with oversight from the Directors, to establish a control environment and maintainpolicies andprocedures to assist in achieving theobjectiveof ensuring, as far aspossible, theorderlyandefficientconductof thegroup’sbusiness.This responsibility includesestablishingandmaintainingcontrolspertaining to thebank’sobjectiveofpreparing financial statementsas requiredby theCompaniesAct,1995andmanaging risks thatmaygiverisetomaterialmisstatementsinthosefinancialstatements.Indeterminingwhichcontrolstoimplementtopreventanddetectfraud,managementconsiderstherisksthatthefinancialstatementsmaybemateriallymisstatedasaresultoffraud.

SignedonbehalfoftheBoardofDirectorsby:


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Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

Note §000 §000 §000 §000Interestreceivableandsimilarincome–onloansandadvances,balanceswith CentralBankofMaltaandTreasuryBills 6 155,408 224,031 155,401 223,907–ondebtandotherfixedincomeinstruments 6 13,630 21,479 11,535 21,376Interestpayable 7 (64,068) (122,466) ((65,319) (124,623) ______________ ______________ ______________ ______________

Netinterestincome 104,970 123,044 101,617 120,660

Feesandcommissionsreceivable 34,259 34,332 31,148 28,498Feesandcommissionspayable (1,895) (2,567) (1,637) (1,955) ______________ ______________ ______________ ______________

Netfeeandcommissionincome 8 32,364 31,765 29,511 26,543

Dividendincome 9 43 69 10,581 1,504Tradingprofits 10 7,221 7,802 7,221 7,802Netincomefrominsurancefinancialinstrumentsdesignatedatfairvaluethroughprofitorloss 12 26,717 (29,407) – –Netgainsonsaleofavailable-for-salefinancialassets 11 1,268 2,787 1,184 2,725Netearnedinsurancepremiums 12 52,878 58,032 – –Netotheroperatingincome 12 (2,232) 31,779 892 3,749 ______________ ______________ ______________ ______________

Totaloperatingincome 223,229 225,871 151,006 162,983

Netinsuranceclaimsincurredandmovementinpolicyholders’liabilities 12 (63,570) (37,570) – – ______________ ______________ ______________ ______________

Netoperatingincome 12 159,659 188,301 151,006 162,983

Employeecompensationandbenefits 13 (49,252) (55,477) (46,680) (52,991)Generalandadministrativeexpenses (27,047) (27,743) (25,599) (26,168)Depreciation (6,322) (5,951) (6,301) (5,920)Amortisation (1,148) (1,238) (1,041) (1,011) ______________ ______________ ______________ ______________

Netoperatingincomebeforeimpairmentchargesandprovisions 75,890 97,892 71,385 76,893

Netimpairment 14 (4,429) (1,907) (4,232) (1,907)Netprovisionsforliabilitiesandothercharges (265) 102 (237) 103 ______________ ______________ ______________ ______________

Profitbeforetax 15 71,196 96,087 66,916 75,089Taxexpense 16 (25,329) (32,972) (22,261) (25,706) ______________ ______________ ______________ ______________

Profitfortheyear 45,867 63,115 44,655 49,383 _________ _________ _________ _________Profitattributabletoshareholders 45,867 63,115 44,655 49,383 _________ _________ _________ _________Earningspershare 17 15.7c 21.6c 15.3c 16.9c _________ _________ _________ _________

Income Statements for the year 1 January 2009 to 31 December 2009

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Statements of Comprehensive Income for the year 1 January 2009 to 31 December 2009

Group Bank ________________________________ ________________________________ 2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000

Profitattributabletoshareholders 45,867 63,115 44,655 49,383 _________ _________ _________ _________OthercomprehensiveincomeAvailable-for-saleinvestments:–changeinfairvalue 18 17,693 (9,635) 16,132 (9,673)–changeinfairvaluetransferredtoprofitorloss 18 (1,268) (1,348) (1,184) (1,287)–incometaxes 18 (5,749) 3,844 (5,232) 3,836 ______________ ______________ ______________ ______________

Othercomprehensiveincomefortheyear,netoftax 10,676 (7,139) 9,716 (7,124) _________ _________ _________ _________Totalcomprehensiveincomefortheyear,netoftax 56,543 55,976 54,371 42,259 _________ _________ _________ _________

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Group Bank ________________________________ ________________________________ 2009 2008 2009 2008 ______________ ______________ ______________ ______________

Note §000 §000 §000 §000AssetsBalanceswithCentralBankofMalta,TreasuryBillsandcash 18 172,671 130,682 172,670 130,681Chequesincourseofcollection 10,764 9,308 10,764 9,308Financialassetsheldfortrading 19 11,746 11,823 11,964 12,057Financialassetsdesignatedatfairvaluethroughprofitorloss 20 248,553 279,714 – –Financialinvestments 21 478,975 429,912 380,275 412,016Loansandadvancestobanks 22 747,657 1,072,306 747,582 1,072,269Loansandadvancestocustomers 23 3,226,477 3,112,240 3,226,477 3,112,240Sharesinsubsidiarycompanies 24 – – 35,707 35,707Intangibleassets 25 60,691 64,256 1,741 1,797Propertyandequipment 26 65,397 70,684 65,470 70,731Investmentproperty 27 14,588 14,050 11,665 11,647Assetsheldforsale 28 10,604 9,168 10,604 9,317Currenttaxrecoverable 6,164 2,966 4,516 2,164Deferredtaxassets 33 9,053 15,916 18,766 15,726Otherassets 29 20,712 25,824 7,931 8,425Prepaymentsandaccruedincome 30 33,748 47,239 30,006 44,598 ______________ ______________ ______________ ______________

Totalassets 5,117,800 5,296,088 4,726,138 4,948,683 _________ _________ _________ _________LiabilitiesFinancialliabilitiesheldfortrading 19 11,044 11,381 11,046 12,375Amountsowedtobanks 31 168,771 462,185 168,771 462,185Amountsowedtocustomers 32 4,086,669 4,016,632 4,146,295 4,073,875Provisionforcurrenttax 207 688 – –Deferredtaxliabilities 33 18,851 17,600 – –Liabilitiestocustomersunderinvestmentcontracts 34 16,853 15,122 – –Liabilitiesunderinsurancecontractsissued 35 351,513 311,250 – –Otherliabilities 36 35,479 36,734 32,221 33,883Accrualsanddeferredincome 37 33,422 53,930 33,068 53,839Provisionsforliabilitiesandothercharges 38 577 312 514 277Subordinatedliabilities 39 87,827 87,777 87,827 87,777 ______________ ______________ ______________ ______________

Totalliabilities 4,811,213 5,013,611 4,479,742 4,724,211 ______________ ______________ ______________ ______________

EquitySharecapital 40 87,552 87,552 87,552 87,552Revaluationreserve 41 25,825 15,149 25,030 15,314Retainedearnings 41 193,210 179,776 133,814 121,606 ______________ ______________ ______________ ______________

Totalequity 306,587 282,477 246,396 224,472 ______________ ______________ ______________ ______________

Totalliabilitiesandequity 5,117,800 5,296,088 4,726,138 4,948,683 _________ _________ _________ _________MemorandumitemsContingentliabilities 42 119,449 129,925 119,472 129,948 _________ _________ _________ _________Commitments 43 923,900 1,110,572 923,900 1,110,572 _________ _________ _________ _________Thefinancialstatementsonpages26to88wereapprovedbytheBoardofDirectorson22February2010andsignedonitsbehalfby:


Statements of Financial Position at 31 December 2009

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Statements of Changes in Equity for the year 1 January 2009 to 31 December 2009

Share Revaluation Retained Total capital reserve earnings equity ______________ ______________ ______________ ______________

Note §000 §000 §000 §000

GroupAt1January2009 87,552 15,149 179,776 282,477 ______________ ______________ ______________ ______________

Profitfortheyear – – 45,867 45,867

Othercomprehensiveincome 63,115 63,115

Available-for-saleinvestments: 63,115–changeinfairvalue,netoftax – 11,500 – 11,500–changeinfairvaluetransferredtoprofitorloss,netoftax – (824) – (824) ______________ ______________ ______________ ______________

Totalothercomprehensiveincome – 10,676 – 10,676 ______________ ______________ ______________ ______________

Totalcomprehensiveincomefortheyear – 10,676 45,867 56,543 ______________ ______________ ______________ ______________

Transactionswithowners,recordeddirectlyinequity

Share-basedpayments – – 384 384

Dividends 45 – – (32,817) (32,817) ______________ ______________ ______________ ______________

Totalcontributionsbyanddistributionstoowners – – (32,433) (32,433) ______________ ______________ ______________ ______________

At31December2009 87,552 25,825 193,210 306,587 __________ __________ __________ __________At1January2008 84,976 24,614 166,702 276,292 ______________ ______________ ______________ ______________



Available-for-saleinvestments: 63,115 63,115–changeinfairvalue,netoftax – (6,263) – (6,263)–changeinfairvaluetransferredtoprofitorloss,netoftax – (876) – (876)Releaseofrevaluationreserveondisposalofproperties,netoftax – (2,326) 2,326 – ______________ ______________ ______________ ______________

Totalothercomprehensiveincome – (9,465) 2,326 (7,139) ______________ ______________ ______________ ______________

Totalcomprehensiveincomefortheyear – (9,465) 65,441 55,976 ______________ ______________ ______________ ______________


Increaseinpaid-upvalue 2,576 –) (2,576) –


Dividends 45 – – (50,649) (50,649) ______________ ______________ ______________ ______________

Totalcontributionsbyanddistributionstoowners 2,576 – (52,367) (49,791) ______________ ______________ ______________ ______________

At31December2008 87,552 15,149 179,776 282,477 __________ __________ __________ __________

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Share Revaluation Retained Total capital reserve earnings equity ______________ ______________ ______________ ______________

Note §000 §000 §000 §000

BankAt1January2009 87,552 15,314 121,606 224,472 ______________ ______________ ______________ ______________


Othercomprehensiveincome

Available-for-saleinvestments: 63,115 63,115–changeinfairvalue,netoftax – 10,485 – 10,485–changeinfairvaluetransferredtoprofitorloss,netoftax – (769) – (769) ______________ ______________ ______________ ______________

Totalothercomprehensiveincome – 9,716 – 9,716 ______________ ______________ ______________ ______________

Totalcomprehensiveincomefortheyear – 9,716 44,655 54,371 ______________ ______________ ______________ ______________

Transactionswithowners,recordeddirectlyinequity 63,115 63,115


Dividends 45 – – (32,817) (32,817) ______________ ______________ ______________ ______________

Totalcontributionsbyanddistributionstoowners – – (32,447) (32,447) ______________ ______________ ______________ ______________

At31December2009 87,552 25,030 133,814 246,396 __________ __________ __________ __________At1January2008 84,976 24,764 122,317 232,057 ______________ ______________ ______________ ______________



Available-for-saleinvestments: 63,115 63,115–changeinfairvalue,netoftax – (6,288) – (6,288)–changeinfairvaluetransferredtoprofitorloss,netoftax – (836) – (836)Releaseofrevaluationreserveondisposalofproperties,netoftax – (2,326) 2,326 – ______________ ______________ ______________ ______________

Totalothercomprehensiveincome – (9,450) 2,326 (7,124) ______________ ______________ ______________ ______________

Totalcomprehensiveincomefortheyear – (9,450) 51,709 42,259 ______________ ______________ ______________ ______________


Increaseinpaid-upvalue 2,576 – (2,576) –


Dividends 45 – – (50,649) (50,649) ______________ ______________ ______________ ______________

Totalcontributionsbyanddistributionstoowners 2,576 – (52,420) (49,844) ______________ ______________ ______________ ______________

At31December2008 87,552 15,314 121,606 224,472 __________ __________ __________ __________

Statements of Changes in Equity for the year 1 January 2009 to 31 December 2009 (continued)

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Group Bank ________________________________ ________________________________ 2009 2008 2009 2008 ______________ ______________ ______________ ______________

Note §000 §000 §000 §000Cashflowsfromoperatingactivities Interest,commissionandpremiumreceipts 265,609 314,862 206,526 248,029Interest,commissionandclaimspayments (103,916) (145,954) (83,838) (125,827)Paymentstoemployeesandsuppliers (80,017)) (79,468) (75,910) (75,013) ______________ ______________ ______________ ______________

Operatingprofitbeforechangesinoperatingassets/liabilities 81,676 89,440 46,778 47,189

Decrease/(increase)inoperatingassets:Tradinginstruments 36,917 (32,825) 391 33ReservedepositwithCentralBankofMalta 4,575 61,306 4,575 61,306Loansandadvancestocustomersandbanks 174,561 (471,985) 174,774 (471,985)TreasuryBills (32,931) 80,531 (48,690) 80,531Otherreceivables (3,814) (4,867) (2,983) (4,876)

Increase/(decrease)inoperatingliabilities:Customeraccountsandamountsowedtobanks 51,665 2,379 53,076 (8,316)Otherpayables 7,728 5,213 359 3,801 ______________ ______________ ______________ ______________

Netcashfrom/(usedin)operatingactivitiesbeforetax 320,377 (270,808) 228,280 (292,317)Taxpaid (26,879) (38,876) (21,167) (30,498) ______________ ______________ ______________ ______________

Netcashfrom/(usedin)operatingactivities 293,498 (309,684) 207,113 (322,815) ______________ ______________ ______________ ______________

CashflowsusedininvestingactivitiesDividendsreceived 387 49 8,628 982Interestreceivedfromfinancialinvestments 16,115 23,884 15,444 23,825Proceedsfromsaleandmaturityoffinancialinvestments 187,399 88,551 180,805 86,156Proceedsonsaleofpropertyandequipmentandintangibleassets 2,097 9,755 1,949 9,750Purchaseoffinancialinvestments ((218,285)) (83,733) (132,135) (67,953)Purchaseofpropertyandequipment,investmentpropertyandintangibleassets (4,174) (7,556) (4,112) (7,454)Purchaseofsharesinsubsidiarycompanies – – – (6,166) ______________ ______________ ______________ ______________

Netcash(usedin)/frominvestingactivities (16,461) 30,950 70,579 39,140 ______________ ______________ ______________ ______________

CashflowsusedinfinancingactivitiesDividendspaid (32,817) (50,649) (32,817) (50,649)Issueofsubordinatedloanstock – 30,000 – 30,000Subordinatedloanstockissuecosts – (226) – (226) ______________ ______________ ______________ ______________

Netcashusedinfinancingactivities (32,817) (20,875) (32,817) (20,875) ______________ ______________ ______________ ______________

Increase/(decrease)incashandcashequivalents 244,220 (299,609) 244,875 (304,550) _________ _________ _________ _________Effectofexchangeratechangesoncashandcashequivalents 6,911 (22,840) 6,911 (22,840)Netincrease/(decrease)incashandcashequivalents 237,309 (276,769) 237,964 (281,710) ______________ ______________ ______________ ______________

244,220 (299,609) 244,875 (304,550)Cashandcashequivalentsatbeginningofyear 304,595 604,204 299,572 604,122 ______________ ______________ ______________ ______________

Cashandcashequivalentsatendofyear 46 548,815 304,595 544,447 299,572 _________ _________ _________ _________

Statements of Cash Flows for the year 1 January 2009 to 31 December 2009

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H S B C B A N K M A L T A P . L . C .H S B C B A N K M A L T A P . L . C .

1 Reportingentity

HSBCBankMaltap.l.c.(the‘bank’)isalimitedliabilitycompanydomiciledandincorporatedinMalta.

Theconsolidatedfinancialstatementsofthebankasatandfortheyearended31December2009comprisethebankanditssubsidiaries(togetherreferredtoasthe‘group’andindividuallyas‘groupentities’).

2 Basisofpreparation

a Statementofcompliance

ThesefinancialstatementshavebeendrawnupinaccordancewithInternationalFinancialReportingStandardsasadoptedbytheEU(‘theapplicablefinancialreportingframework’).AllreferencesinthesefinancialstatementstoIAS,IFRSorSIC/IFRICinterpretationsrefertothoseadoptedbytheEU.

ThesefinancialstatementshavealsobeenpreparedandpresentedinaccordancewiththeprovisionsoftheBankingAct,1994andtheCompaniesAct,1995,enactedinMalta.

b Basisofmeasurement

Thefinancialstatementshavebeenpreparedonthehistoricalcostbasisexceptforcertainintangibleassetsmeasuredatthepresentvalueofin-forcelong-termassurancebusiness,andthefollowingaremeasuredatfairvalue:

– Derivativefinancialinstruments;

– Financialinstrumentsatfairvaluethroughprofitorloss;

– Available-for-salefinancialassets;and

– Property.

c Functionalandpresentationcurrency

Thefinancialstatementsarepresentedineuro(§),whichisthegroup’sfunctionalcurrency.

d Useofestimatesandassumptions

Thepreparationoffinancialstatementsinconformitywiththeapplicablefinancialreportingframeworkrequirestheuseofestimatesandassumptionsaboutfutureconditions.Theuseofavailableinformationandapplicationofjudgementareinherentintheformationofestimates,actualresultsinthefuturemaydifferfromthosereported.

Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisedandinanyfutureperiodsaffected.

Informationaboutsignificantareasofestimation,uncertaintyandcriticaljudgmentsinapplyingaccountingpoliciesthathavethemostsignificanteffectontheamountrecognisedinthefinancialstatementsaredescribedinnotes4,25and52.

Notes on the Accounts

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3 Significantaccountingpolicies

Theaccountingpoliciessetoutbelowhavebeenappliedconsistentlytoallperiodspresentedinthesefinancialstatements,andhavebeenappliedconsistentlybygroupentities.

a Basisofconsolidation

i Subsidiaries

Subsidiaries are entities controlled by the bank. The financial statements of subsidiaries are included in theconsolidatedfinancialstatementsfromthedatethatcontrolcommencesuntilthedatethatcontrolceases.

ii Transactionseliminatedonconsolidation

Intra-groupbalancesandincomeandexpensesarisingfromintra-grouptransactions,areeliminatedinpreparingtheconsolidatedfinancialstatements.Unrealisedlossesareeliminatedinthesamewayasunrealisedgains,butonlytotheextentthatthereisnoevidenceofimpairment.

b Financialinstruments

i Non-derivativefinancialinstruments

Non-derivativefinancialinstrumentsarerecognisedinitiallyatfairvalueplus,forinstrumentsnotatfairvaluethroughprofitorloss,anydirectlyattributabletransactioncosts.Subsequenttoinitialrecognitionnon-derivativefinancialinstrumentsaremeasuredasdescribedbelow:

Cashandcashequivalents

Cash and cash equivalents comprise cash balances and deposits with contractual maturity of less than threemonths.Loans and advances tobanks andAmountsowed tobanks that are repayableondemandor have acontractualmaturityofthreemonthsorlessandwhichformanintegralpartofthegroup’scashmanagementareincludedasacomponentofcashandcashequivalentsforthepurposeofthecashflowstatement.Subsequenttoinitialrecognitioncashequivalentsaremeasuredatamortisedcost.

Tradingassetsandtradingliabilities

Treasurybills,debtsecurities,equitysharesandshortpositions insecuritiesareclassifiedasheldfor tradingiftheyhavebeenacquiredprincipallyforthepurposeofsellingorrepurchasinginthenearterm,ortheyformpartofaportfolioofidentifiedfinancialinstrumentsthataremanagedtogetherandforwhichthereisevidenceofarecentpatternofshort-termprofit-taking.Thesefinancialassetsorfinancialliabilitiesarerecognisedontradedatewhen thegroupenters intocontractualarrangementswithcounterparties topurchaseorsellsecurities,andarenormallyderecognisedwheneither sold (assets)orextinguished (liabilities).Subsequently, their fairvaluesareremeasured,andallgainsandlossesfromchangesthereinarerecognisedinprofitorlossinTradingprofitsastheyarise.

Financialinstrumentsdesignatedatfairvalue

Financialinstruments,otherthanthoseheldfortrading,areclassifiedinthiscategoryiftheymeetoneormoreofthecriteriasetoutbelow,andaresodesignatedbymanagement.Thegroupdesignatesfinancialinstrumentsatfairvaluewhenthedesignation:

– eliminatesorsignificantlyreducesvaluationorrecognitioninconsistenciesthatwouldotherwisearisefrommeasuringfinancialassetsorfinancialliabilities,orrecognisinggainsandlossesonthem,ondifferentbases.Under thiscriterion, theonlyclassoffinancial instrumentsdesignatedbythegroupisfinancialassetsandfinancialliabilitiesunderinvestmentcontracts.

Liabilities tocustomersunder linkedcontractsaredeterminedbasedonthefairvalueof theassetsheld inthe linked funds, with changes recognised in profit or loss. Liabilities to customers under other types ofinvestmentcontractswouldbemeasuredatamortisedcost.Ifnodesignationwasmadefortheassetsrelatingtothecustomerliabilitiestheywouldbeclassifiedasavailable-for-saleandthechangesinfairvaluewouldberecordeddirectlyinequity.Thesefinancialinstrumentsaremanagedonafairvaluebasisandmanagementinformationisalsopreparedonthisbasis.Designationatfairvalueofthefinancialassetsandliabilitiesunderinvestmentcontractsallowsthechangesinfairvaluestoberecordedinprofitor lossandpresentedinthesameline.

Notes on the Accounts (continued)

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3 Significantaccountingpolicies(continued)

b Financialinstruments(continued)

i Non-derivativefinancialinstruments(continued)

Financialinstrumentsdesignatedatfairvalue(continued)

– appliestogroupsoffinancialassets,financialliabilitiesorcombinationsthereofthataremanaged,andtheirperformanceevaluated,onafairvaluebasisinaccordancewithadocumentedriskmanagementorinvestmentstrategy,andwhereinformationaboutthegroupsoffinancialinstrumentsisreportedtomanagementonthatbasis.Under this criterioncertain financial assetsheld tomeet liabilitiesunder insurancecontracts are themainclassoffinancialinstrumentssodesignated.Thegrouphasdocumentedriskmanagementandinvestmentstrategiesdesignedtomanagesuchassetsatfairvalue,takingintoconsiderationtherelationshipofassetstoliabilitiesinawaythatmitigatesmarketrisks.Reportsareprovidedtomanagementonthefairvalueoftheassets.

The fair value designation, once made, is irrevocable. Designated financial assets and financial liabilities arerecognised when the group enters into the contractual provisions of the arrangements with counterparties,whichisgenerallyontradedate,andarenormallyderecognisedwhensold(assets)orextinguished(liabilities).Subsequently,thefairvaluesareremeasured,andgainsandlossesfromchangesthereinarerecognisedinNetincomefrominsurancefinancialinstrumentsdesignatedatfairvaluethroughprofitorloss.

Treasury bills, debt securities and equity shares intended to be held on a continuing basis, other than thosedesignatedatfairvalue,areclassifiedasavailable-for-saleorheld-to-maturity.

Available-for-sale

Available-for-salefinancialassetsaresubsequentlyremeasuredatfairvalue,andchangesthereinarerecognisedinothercomprehensiveincomeuntilthefinancialassetsareeithersoldorbecomeimpaired.Whenavailable-for-salefinancialassetsaresold,cumulativegainsorlossespreviouslyrecognisedinothercomprehensiveincomearerecognisedinprofitorlossasNetgainsonsaleofavailable-for-salefinancialassets.

Held-to-maturity

Held-to-maturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitiesthatthegrouppositivelyintends,andisable,toholduntilmaturity.Held-to-maturityinvestmentsaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,lessanyimpairmentlosses.

Loansandadvancestobanksandcustomers

Loansandadvancestobanksandcustomersarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.Loansandadvancesarerecognisedwhenthecashisadvancedtotheborrowers.Theyaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,lessimpairmentlosses.

ii Derivativefinancialinstruments

Derivativesare recognised initiallyandaresubsequently remeasured,at fairvalue.Fairvaluesofexchange tradedderivatives are obtained from quoted market prices. Fair value of over-the-counter derivatives are obtained usingvaluationtechniques,includingdiscountedcashflowmodelsandoptionpricingmodels.Allderivativesareclassifiedasassetswhentheirfairvalueispositiveorasliabilitieswhentheirfairvalueisnegative.

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b Financialinstruments(continued)

iiiDerecognitionoffinancialassetsandliabilities

Financialassetsarederecognisedwhentherighttoreceivecashflowsfromtheassetshasexpiredorwhenthegrouphastransferreditscontractualrighttoreceivethecashflowsofthefinancialassets,andeither

– substantiallyalltherisksandrewardsofownershiphavebeentransferred;or

– substantiallyalltherisksandrewardshaveneitherbeenretainednortransferredbutcontrolisnotretained.

Financial liabilities are derecognised when they are extinguished, that is when the obligation is discharged,cancelledorexpires.

ivOffsettingfinancialassetsandfinancialliabilities

Financial assets and financial liabilities are offset and the net amount reported in the statement of financialpositionwhenthereisalegallyenforceablerighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasis,orrealisetheassetandsettletheliabilitysimultaneously.

v Repurchasetransactions

Thegroupentersintopurchasesofinvestmentsunderagreementtoresellsubstantiallyidenticalinvestmentsatacertaindateinthefutureatafixedprice.Investmentspurchasedsubject tocommitmentstoresellatfuturedatesarenotrecognised.Theamountspaidarerecognisedinloansandadvancestoeitherbanksorcustomers.The receivables are shown as collateralised by the underlying security. Investments sold under repurchaseagreementscontinuetoberecognisedinthestatementoffinancialpositionandaremeasuredinaccordancewiththeaccountingpolicyforeitherassetsheldfortradingoravailable-for-saleasappropriate.Theproceedsfromsaleoftheinvestmentsarereportedasliabilitiestoeitherbanksorcustomers.

Thedifferencebetweenthesaleandrepurchaseconsiderationisrecognisedusingtheeffectiveinterestmethodovertheperiodofthetransactionsandisincludedininterest.

c Investmentinsubsidiaries

Investmentinsubsidiariesisshownintheseparatestatementoffinancialpositionatcostlessanyimpairmentlosses.

d Intangibleassets

Intangibleassetsincludesoftwareandthepresentvalueofin-forcelong-terminsurancebusiness.

Softwareacquiredbythegroupisinitiallymeasuredatcostandsubsequentlystatednetofaccumulatedamortisationandimpairmentlosses.Subsequentexpenditureiscapitalisedonlywhenitincreasesthefutureeconomicbenefitsembodiedinthespecificassettowhichitrelates.Allotherexpenditureisrecognisedinprofitorlossasincurred.

Amortisationisrecognisedinprofitorlossonastraight-linebasisovertheestimatedusefullifeofsoftware,fromthedateitisavailableforuse.Theestimatedusefullifeofsoftwarerangesbetween3–5years.

Fortheaccountingpolicygoverningthepresentvalueofin-forcelong-terminsurancebusinessseenote3i(iv).

e Propertyandequipment

i Ownedassets

Propertyandequipmentareinitiallymeasuredatcost.Freeholdandlongleaseholdpropertiesarerevaluedtofairvalueonthebasisoftheirexistinguse.Revaluationsareperformedbyaprofessionallyqualifiedarchitectwithsufficientregularitysuchthatthecarryingamountdoesnotdiffermateriallyfromthatwhichwouldbedeterminedusingfairvaluesatthereportingdate.Anysurplusesarisingonrevaluationarecreditedtoarevaluationreserve.Anydeficienciesresultingfromdecreasesinvaluearedeductedfromthisreservetotheextentthatitissufficienttoabsorbthem,withanyexcesschargedtoprofitorloss.

Itemsofpropertyandequipmentarestatednetofaccumulateddepreciationandanyimpairmentlosses.

GainsandlossesondisposalofanitemofpropertyandequipmentaredeterminedbycomparingtheproceedsfromdisposalwiththecarryingamountofpropertyandequipmentandarerecognisednetinprofitorlosswithinNetoperatingincome.Whenrevaluedassetsaresold,theamountsincludedintherevaluationsurplusreservearetransferredtoretainedearnings.


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e Propertyandequipment(continued)

ii Financeandoperatingleases

Leasesintermsofwhichthegroupassumessubstantiallyalltherisksandrewardsofownershipareclassifiedasfinanceleases.

Whenthegroupisalesseeunderfinanceleases,theleasedassetsarecapitalisedandincludedinpropertyandequipmentandthecorrespondingliabilitytothelessorisincludedinOtherliabilities.Afinanceleaseanditscorrespondingliabilityarerecognisedinitiallyatthefairvalueoftheassetor,iflower,thepresentvalueoftheminimumleasepayments.Financechargespayableare recognised inNet interest incomeover theperiodoftheleasebasedontheinterestrateimplicitintheleasesoastogiveaconstantrateofinterestontheremainingbalanceoftheliability.

Allotherleasesareclassifiedasoperatingleases.Whenthegroupisthelessee,leasedassetsarenotrecognisedonthestatementoffinancialposition.Rentalspayableandreceivableunderoperatingleasesareaccountedforonastraight-linebasisovertheperiodsoftheleasesandareincludedinGeneralandadministrativeexpensesandNetotheroperatingincomerespectively.

iiiSubsequentcosts

Thecostofreplacingpartofanitemofpropertyandequipmentisrecognisedinthecarryingamountoftheitemifitisprobablethatthefutureeconomicbenefitsembodiedwithinthepartwillflowtothegroupanditscostcanbemeasuredreliably.Thecarryingamountofthereplacedpartisderecognised.Thecostsoftheday-to-dayservicingofpropertyandequipmentarerecognisedinprofitorlossasincurred.

iv Depreciation

Depreciationisrecognisedinprofitorlossonastraight-linebasisovertheestimatedusefullivesofeachpartofanitemofpropertyandequipment.Landisnotdepreciated.Theestimateduseful livesfor thecurrentandcomparativeperiodareasfollows:

– longleaseholds,freeholdbuildingsandimprovements 50years

– shortleaseholdsandimprovementstorentedproperty overtermoflease

– equipment,furnitureandfittings 3–10years

Depreciationmethods,usefullivesandresidualvaluesarereviewedateachreportingdate.

f Investmentproperty

Propertyheldforlong-termrentalyieldsorforcapitalappreciationorboththatisnotoccupiedbythegroupisclassifiedasinvestmentproperty.

Investmentpropertiesareincludedinthestatementoffinancialpositionatfairvaluewithchangesthereinrecognisedinprofitor loss in theperiodofchange.Fairvaluesaredeterminedbyindependentprofessionalvaluerswhoapplyrecognisedvaluationtechniques.

g Impairment

i Financialassetsnotatfairvaluethroughprofitorloss

Ateachreportingdateanassessmentismadeofwhetherthereisanyobjectiveevidenceofimpairmentinthevalueofafinancialasset.Afinancialassetisconsideredtobeimpairedifobjectiveevidenceindicatesthatoneormoreeventshavehadanegativeeffectontheestimatedfuturecashflowsofthatasset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the differencebetweenitscarryingamountandthepresentvalueoftheestimatedfuturecashflowsdiscountedattheoriginaleffectiveinterestrate.Animpairmentlossinrespectofanavailable-for-salefinancialassetiscalculatedasthedifferencebetweenthefinancialasset’sacquisitioncost(netofanyprincipalrepaymentsandamortisation)andthecurrentfairvalue(lessanypreviousimpairmentlossrecognisedinprofitorloss).

Allimpairmentlossesarerecognisedintheprofitorloss.Anycumulativelossinrespectofanavailable-for-salefinancialassetrecognisedpreviouslyinequityisremovedfromothercomprehensiveincomeandtransferredtoprofitorloss.

Lossesforimpairedloansarerecognisedpromptlywhenthereisobjectiveevidencethatimpairmentofaloanorportfolioofloanshasoccurred.

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g Impairment(continued)

i Financialassetsnotatfairvaluethroughprofitorloss(continued)

Therearetwobasicmethodsofcalculatingimpairmentlosses,thosecalculatedonindividualloansandthoselossesassessedonacollectivebasis.Impairmentlossesarerecordedaschargestotheprofitorloss.Thecarryingamountof impaired loanson the statementof financial position is reduced through theuseof impairment allowancesaccounts.Lossesexpectedasaresultoffutureevents,nomatterhowlikely,arenotrecognisedinprofitorloss.

ii Calculationofrecoverableamount

Ateachreportingdate,thegroupassessesonacase-by-casebasiswhetherthereisanyobjectiveevidencethata loan is impaired. This procedure is applied to all accounts that are considered individually significant. Indeterminingimpairmentlossesontheseloans,thefollowingfactorsareconsidered:

– thegroup’saggregateexposuretothecustomer;

– the viability of the customer’s business model and their capability to trade successfully out of financial difficultiesandgeneratesufficientcashflowtoservicedebtobligations;

– theamountandtimingofexpectedreceiptsandrecoveries;

– theextentofothercreditors’commitmentsrankingaheadof,orparipassuwith,thegroupandthelikelihood ofothercreditorscontinuingtosupportthecustomer;

– the complexity of determining the aggregate amount and ranking of all creditor claims and the extent to whichlegalandinsuranceuncertaintiesareevident;

– therealisablevalueofsecurity(orothercreditriskmitigants)andlikelihoodofsuccessfulrepossession;and

– thelikelydeductionofanycostsinvolvedinrecoveryofamountsoutstanding.

Impairmentlossesarecalculatedbydiscountingtheexpectedfuturecashflowsofaloanatitsoriginaleffectiveinterestrate,andcomparingtheresultantpresentvaluewiththeloan’scarryingamount.

Impairmentisassessedonacollectivebasisintwocircumstances:

– to cover losses which have been incurred but have not yet been identified on loans subject to individual assessment;and

– forhomogeneousgroupsofloansthatarenotconsideredindividuallysignificant.

Individuallyassessedloansforwhichnoevidenceoflosshasbeenspecificallyidentifiedonanindividualbasisaregroupedtogetheraccordingtotheircreditriskcharacteristicsforthepurposeofcalculatinganestimatedcollectiveloss.Thisreflectsimpairmentlossesincurredatthebalancesheetdatewhichwillonlybeindividuallyidentifiedinthefuture.

Thecollectiveimpairmentallowanceisdeterminedaftertakingintoaccount:

– historical loss experience inportfoliosof similar riskcharacteristics (for example,by industry sector, loan gradeorproduct);

– the estimated period between impairment occurring and the loss being identified and evidenced by the establishmentofanappropriateallowanceagainstthelossonanindividualloan;and

– management’sexperiencedjudgementastowhetherthecurrenteconomicandcreditconditionsaresuchthat theactuallevelofinherentlossesislikelytobegreaterorlessthanthatsuggestedbyhistoricalexperience.

Theperiodbetweenalossoccurringanditsidentificationisidentifiedbylocalmanagementforeachidentifiedportfolio.

Forhomogeneousgroupsof loans thatarenotconsidered individuallysignificant, twoalternativemethodsareusedtocalculateallowancesonaportfoliobasis:

– When appropriate empirical information is available, the group utilises roll rate methodology. This methodology employs a statistical analysis of historical trends of delinquency and default to estimate the likelihood that loans will progress through the various stages of delinquency and ultimately prove irrecoverable.Theestimatedlossisthedifferencebetweenthepresentvalueofexpectedfuturecashflows, discounted at the original effective interest rate of the portfolio, and the carrying amount of the portfolio. Currenteconomicconditionsarealsoevaluatedwhencalculatingtheappropriatelevelofallowancerequired tocoverinherentloss.


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g Impairment(continued)

ii Calculationofrecoverableamount(continued)

– Inothercases,whentheportfoliosizeissmallorwheninformationisinsufficientornotsufficientlyreliable toadoptarollratemethodology,thegroupadoptsaformulaicapproachwhichallocatesprogressivelyhigher percentagelossratesthelongeracustomer’sloanisoverdue.Lossratesarecalculatedfromthediscounted expectedfuturecashflowsfromaportfolio.

Innormalcircumstances,historicalexperienceprovides themostobjectiveand relevant information from which to assess inherent loss within each portfolio. In certain circumstances, historical loss experience provides less relevant information about the inherent loss in a given portfolio at the reporting date,forexample,wheretherehavebeenchangesineconomic,regulatoryorbehaviouralconditions,suchthat themostrecenttrendsintheportfolioriskfactorsarenotfullyreflectedinthestatisticalmodels.Inthese circumstances,suchriskfactorsaretakenintoaccountwhencalculatingtheappropriatelevelofimpairment allowancesbyadjustingtheimpairmentallowancesderivedsolelyfromhistoricallossexperience.

Rollrates,lossratesandtheexpectedtimingoffuturerecoveriesareregularlybenchmarkedagainstactual outcomestoensuretheyremainappropriate.

iiiNon-financialassets

Thecarryingamountsofthegroup’snon-financialassets,otherthaninvestmentpropertyanddeferredtaxassets,are reviewed at each reporting date to determine whether there is any indication of impairment. If any suchindicationexists,thentheasset’srecoverableamountisestimated.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds itsestimatedrecoverableamount.Impairmentlossesarerecognisedinprofitorloss.

Impairmentlossesrecognisedinpriorperiodsareassessedateachreportingdateforanyindicationsthatthelosshasdecreasedornolongerexists.

Therecoverableamountofnon-financialassetsisthegreateroftheirnetsellingpriceandvalueinuse.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.

iv Reversalsofimpairment

Animpairmentlossisreversedifthereversalcanberelatedobjectivelytoaneventoccurringaftertheimpairmentlosswasrecognised.

Iftheamountofanimpairmentlossdecreasesinasubsequentperiod,andthedecreasecanberelatedobjectivelyto an event occurring after the impairment was recognised, the excess is written back by reducing the loanimpairmentallowanceaccountaccordingly.Forfinancialassetsmeasuredatamortisedcostandavailable-for-sale financialassets thataredebt securities, the reversal is recognised inprofitor loss.Foravailable-for-salefinancialassetsthatareequitysecurities,thereversalisrecogniseddirectlyinothercomprehensiveincome.

Animpairmentlossonnon-financialassetsisreversediftherehasbeenachangeintheestimatesusedtodeterminetherecoverableamount.Animpairmentlossisreversedonlytotheextentthattheasset’scarryingamountdoesnot exceed the carrying amount that would have been determined, net of depreciation or amortisation, if noimpairmentlosshadbeenrecognised.

v Loanwrite-offs

Loans(andtherelatedimpairmentallowanceaccounts)arenormallywrittenoff,eitherpartiallyorinfull,whenthereisnorealisticprospectofrecoveryoftheseamountsand,forcollateralisedloans,whentheproceedsfromrealisingthesecurityhavebeenreceived.

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h Assetsheldforsale

Non-currentassetsthatareexpectedtoberecoveredprimarilythroughsaleratherthanthroughcontinuinguseareclassifiedasheldforsale.Immediatelybeforeclassificationasheldforsale,theassetsareremeasuredinaccordancewiththegroup’saccountingpolicies.Thereaftergenerallytheassetsaremeasuredattheloweroftheircarryingamountandfairvaluelesscosttosell.Impairmentlossesoninitialclassificationasheldforsaleandsubsequentgainsorlossesonremeasurementarerecognisedinprofitorloss.Gainsarenotrecognisedinexcessofanycumulativeimpairmentloss.

i Insuranceandinvestmentcontracts

Through its insurance subsidiary, the group issues contracts to customers that contain insurance risk, financialriskoracombination thereof.Acontractunderwhich thegroupaccepts significant insurance risk fromanotherpartybyagreeingtocompensatethatpartyontheoccurrenceofaspecifieduncertainfutureevent,isclassifiedasaninsurancecontract.Aninsurancecontractmayalsotransferfinancialrisk,butisaccountedforasaninsurancecontractiftheinsuranceriskissignificant.

Insurancecontractsareaccountedforasfollows:

i Premiums

Premiumsforlifeinsurancecontractsareaccountedforwhenreceivable,exceptinunit-linkedbusinesswherepremiumsareaccountedforwhenliabilitiesareestablished.

Reinsurancepremiumsareaccountedforinthesameaccountingperiodasthepremiumsforthedirectinsurancecontractstowhichtheyrelate.

iiClaimsandreinsurancerecoveries

Grossinsuranceclaimsforlifeinsurancecontractsreflectthetotalcostofclaimsarisingduringtheyear,includingclaimhandlingcostsandanypolicyholderbonusesallocatedinanticipationofabonusdeclaration.Claimsarisingduring theyear includematurities, surrendersanddeathclaims.Maturityclaimsare recognisedwhendue forpayment.Surrendersarerecognisedwhenpaidoratanearlierdateonwhich,followingnotification,thepolicyceasestobeincludedwithinthecalculationoftherelatedinsuranceliabilities.Deathclaimsarerecognisedwhennotified.

Reinsurancerecoveriesareaccountedforinthesameperiodastherelatedclaim.

iiiLiabilitiesunderinsurancecontracts

Liabilitiesundernon-linkedlifeinsurancecontractsarecalculatedbasedonactuarialprinciples.

Liabilitiesunderunit-linkedlifeinsurancecontractsareatleastequivalenttothesurrenderortransfervaluewhichiscalculatedbyreferencetothevalueoftherelevantunderlyingfundsorindices.

Aliabilityadequacytestiscarriedoutoninsuranceliabilitiestoensurethatthecarryingamountoftheliabilitiesissufficientinthelightofcurrentestimatesoffuturecashflows.Whenperformingtheliabilityadequacytest,allcontractualcashflowsarediscountedandcomparedagainstthecarryingvalueoftheliability.Whereashortfallisidentifieditischargedimmediatelytoprofitorloss.

iv Presentvalueofin-forcelong-terminsurancebusiness

Thevalueplacedoninsurancecontractsthatareclassifiedaslong-terminsurancebusiness,andareinforceatthereportingdateisrecognisedasanasset.

The present value of in-force long-term insurance business is determined by discounting future cash flowsexpected to emerge frombusiness currently in force, using appropriate assumptions in assessing factors suchas future mortality, lapse rates and levels of expenses and a risk discount rate that reflects the risk premiumattributabletotherespectivelong-terminsurancebusiness.Movementsinthepresentvalueofin-forcelong-terminsurancebusinessareincludedinNetotheroperatingincomeonagrossoftaxbasis.


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i Insuranceandinvestmentcontracts(continued)

v Investmentcontracts

Investmentcontractsarethosecontractswherethereisnosignificantinsurancerisk.

Customerliabilitiesunderunit-linkedinvestmentcontractsandthelinkedfinancialassetsaredesignatedatfairvaluethroughprofitorloss,andthemovementsinfairvaluearerecognisedinprofitorlossinNetincomefrominsurancefinancialinstrumentsdesignatedatfairvaluethroughprofitorloss.

Premiumsreceivableandamountswithdrawnareaccountedforasincreases/decreasesintheliabilityrecordedinrespectofinvestmentcontracts.

Liabilitiesunderunit-linkedinvestmentcontractsareatleastequivalenttothesurrenderortransfervaluewhichiscalculatedbyreferencetothevalueoftherelevantunderlyingfundsorindices.

InvestmentmanagementfeesreceivablearerecognisedinprofitorlossovertheperiodoftheprovisionoftheinvestmentmanagementservicesinNetfeeandcommissionincome.

The incremental costs directly related to the acquisition of new investment contracts or renewal of existinginvestmentcontractsaredeferredandamortisedovertheperiodoftheprovisionoftheinvestmentmanagementservices.

j Provisions

Provisions are recognisedwhen it is probable that anoutflowof economicbenefitswill be required to settle acurrentlegalorconstructiveobligationasaresultofpastevents,andareliableestimatecanbemadeoftheamountoftheobligation.Iftheeffectismaterial,provisionsaredeterminedbydiscountingtheexpectedfuturecashflowsatapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyand,whereappropriate,therisksspecifictotheliability.

k Financialguaranteecontracts

Financialguaranteesarecontractsthatrequirethegrouptomakespecifiedpaymentstoreimbursetheholderforalossitincursbecauseaspecifieddebtorfailstomakepaymentwhendueinaccordancewiththetermsofadebtinstrument.

Financialguaranteeliabilitiesareinitiallyrecognisedattheirfairvalue,andtheinitialfairvalueisamortisedoverthe lifeof the financialguarantee.The financialguarantee liability is subsequently carried at thehigherof thisamortisedamountandthepresentvalueofanyexpectedpaymentwhenapaymentundertheguaranteehasbecomeprobable.FinancialguaranteesareincludedwithinAmountsowedtocustomers.

l Interestincomeandexpense

Interestincomeandexpenseforallinterest-bearingfinancialinstrumentsexceptthoseclassifiedasheldfortradingordesignatedatfairvaluethroughprofitorlossarerecognisedinInterestreceivableandInterestpayableinprofitorlossusingtheeffectiveinterestmethod.Theeffectiveinterestmethodisawayofcalculatingtheamortisedcostofafinancialassetorafinancialliability(orgroupsoffinancialassetsorfinancialliabilities)andofallocatingtheInterestreceivableorInterestpayableovertherelevantperiod.

Thecalculationoftheeffectiveinterestrateincludesallfeesandpointspaidorreceived,transactioncosts,anddiscountsorpremiumsthatareanintegralpartoftheeffectiveinterestrate.Transactioncostsareincrementalcoststhataredirectlyattributabletotheacquisition,issueordisposalofafinancialassetorliability.

Interestonimpairedfinancialassetsisrecognisedusingtheoriginaleffectiveinterestrate.

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m Non-interestincome

i Netfeeandcommissionincome

Feeincomeisrecognisedasfollows:

– ontheexecutionofasignificantactwhenthesignificantacthasbeencompleted;and

– astheservicesareprovidedexceptwherethefeeischargedtocoverthecostofacontinuingserviceto,orriskbornefor,thecustomer,orisinterestinnature.Inthesecases,thefeeisrecognisedonanappropriatebasisovertherelevantperiod.

IncomewhichformsanintegralpartoftheeffectiveinterestrateofafinancialinstrumentisrecognisedasanadjustmenttotheeffectiveinterestrateandrecordedinNetinterestincome.

Otherfeesandcommissionexpense,whichrelatesmainlytotransactionandservicefeesareexpensedastheservicesarereceived.

ii Dividendincome

Dividendincomeisrecognisedonthedatetheentity’srighttoreceiveincomeisestablishedwhichinthecaseofquotedsecuritiesisusuallytheex-dividenddate.

iiiNetincomefrominsurancefinancialinstrumentsdesignatedatfairvalue

Netincomefromfinancialinstrumentsdesignatedatfairvalueincludes:

– allgainsandlossesfromchangesinthefairvalueoffinancialassetsandfinancialliabilitiesdesignatedatfairvaluethroughprofitorloss;and

– interestincomeandexpenseanddividendincomearisingonthesefinancialinstruments.

n Employeebenefits

i Definedcontributionplan

ThegroupcontributestowardstheStatepensiondefinedcontributionplaninaccordancewithlocallegislationandtowhichithasnocommitmentbeyondthepaymentoffixedcontributions.Obligationsforcontributionsarerecognisedasanexpenseinprofitorlossastheyfalldue.

ii Terminationbenefits

Terminationbenefitsarerecognisedasanexpensewhenthegroupisdemonstrablycommitted,withoutrealisticpossibilityofwithdrawal,toaformaldetailedplantoeitherterminateemploymentbeforethenormalretirementdate, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.Terminationbenefitsforvoluntaryredundanciesarerecognisedasanexpenseif thegrouphasmadeanofferencouragingvoluntaryredundancy,itisprobablethattheofferwillbeaccepted,andthenumberofacceptancescanbeestimatedreliably.

iiiShare-basedpaymenttransactions

Share-basedpaymentarrangements inwhich thegroupreceivesgoodsorservicesasconsiderationforequityinstrumentsintheultimateparentcompanyareaccountedforasequity-settledshare-basedpaymenttransactions,regardlessofhowtheequityinstrumentsareobtainedbythegroup.

Thegrantdate fairvalueofshare-basedpaymentawardsgranted toemployees is recognisedasanemployeeexpense,withacorrespondingincrease inequity,over theperiodthat theemployeesunconditionallybecomeentitledtotheawards.Theamountrecognisedasanexpenseisadjustedtoreflectthenumberofawardsforwhichtherelatedserviceandnon-marketvestingconditionsareexpectedtobemet,suchthattheamountultimatelyrecognisedasanexpense isbasedon thenumberofawards thatdomeet the relatedserviceandnon-marketperformanceconditionsatthevestingdate.


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o Foreigncurrencies

Transactionsinforeigncurrenciesarerecordedinthefunctionalcurrencyattherateofexchangeprevailingonthedateoftransaction.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintothefunctionalcurrencyattherateofexchangerulingatthereportingdate.Non-monetaryassetsandliabilitiesthataremeasuredatfairvalueinaforeigncurrencyaretranslatedintothefunctionalcurrencyusingtherateofexchangeatthedatethefairvaluewasdetermined.Foreigncurrencydifferencesarisingonretranslationarerecognisedinprofitorlossexceptfordifferencesarisingonretranslationofavailable-for-saleequityinstruments,whicharerecogniseddirectlyinequity.

p Incometax

Incometaxexpensecomprisescurrentanddeferredtax.Incometaxexpenseisrecognisedinprofitorlossexcepttotheextentthatitrelatestoitemsrecogniseddirectlyinequityorinothercomprehensiveincome.

Currenttaxistheexpectedtaxpayableonthetaxableincomefortheyear,usingtaxratesenactedorsubstantivelyenactedatthereportingdate,andanyadjustmenttotaxpayableinrespectofpreviousyears.

Deferredtaxisrecognisedinrespectoftemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedfortaxationpurposes.Deferredtaxismeasuredatthetaxratesthatareexpectedtobeappliedtotemporarydifferenceswhentheyreverse,basedonthelawsthathavebeenenactedorsubstantivelyenactedbythereportingdate.

Adeferredtaxassetisrecognisedforunusedtaxlossesanddeductibletemporarydifferences,totheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheycanbeutilised.Deferredtaxassetsarereviewedateachreportingdateandarereducedtotheextentthatitisnolongerprobablethattherelatedtaxbenefitwillberealised.

q Segmentalreporting

The group’s operating segments are organised into three customer groups, Personal Financial Services (PFS),CommercialBanking(CMB)andGlobalBankingandMarkets(GBM).Thegroup’schiefdecisionmakerregularlyreviewsoperatingactivitybycustomergroup.Thegroup’soperating segmentsweredetermined tobe customergroupsbecausethechiefdecisionmakerusesinformationoncustomergroupsegmentsinordertomakedecisionsaboutallocatingresourcesandassessingperformance.Thegroup’schiefdecisionmakeristheExecutivecommittee(EXCO).

Measurement of segment assets, liabilities, income and expenses is based on the group’s accounting policies.Segmentincomeandexpensesincludetransfersbetweensegmentsandthesetransfersareconductedonarm’slengthtermsandconditions.Sharedcostsareincludedinsegmentonthebasisoftheactualrechargesmade.

r Futureaccountingdevelopments

TheDirectors anticipate that the adoptionof other IFRS thatwere in issue at thedateof authorisationof thesefinancialstatementswillhavenomaterialimpactonthefinancialstatementsofthegroupintheperiodofinitialapplication.

4 Financialinstrumentsandriskmanagement

a Useoffinancialinstruments

Thenatureof thegroup’scorebankingoperations implies that financial instrumentsareextensivelyused in thecourseofitsroutinebusiness.Thegroup’sfinancialinstrumentsconsistofprimaryinstrumentsandincludecashbalanceswithbanks,loansandadvancestocustomers,debtsecuritiesandamountsduetobanksandcustomers.

Thegroupisexposedtoamixedblendofrisksandhenceoperatesariskmanagementstrategywiththeobjectiveofcontrollingandminimisingtheirimpactongroupfinancialperformanceandposition.

Theprincipalcategoriesofriskarecreditrisk,marketriskandliquidityrisk.Thesecategoriesofriskinrelationtolifeinsurancebusinessaredescribedinnote4(e)andexcludedfromgroupfiguresdisclosedinnotes4(b)to4(d).

Thegroup’saccountingpoliciesaredirectedtowardstheestablishmentoffairvaluesforitsassetsandliabilities,formeasurementordisclosurepurposes,inlightoftheserisks.

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4 Financialinstrumentsandriskmanagement(continued)

b Creditrisk

i Creditriskmanagement

Creditriskistheriskoffinanciallossifacustomerorcounterpartyfailstomeetanobligationunderacontract.Itarisesprincipallyfromlending,tradefinanceandtreasurybusiness.Italsoariseswhenissuersofdebtsecuritiesaredowngradedandasaresultthevalueofgroup’sholdingsoftheseassetsfall.Thegrouphasstandards,policiesandproceduresdedicatedtocontrolandmonitortheriskarisingfromallsuchactivities.

Within the overall framework of the group policy, the group has an established risk management processencompassing credit approvals, the control of exposures, credit policy direction to business units and themonitoringandreportingofexposuresbothonanindividualandaportfoliobasiswhichincludesthemanagementofadversetrends.Managementisresponsibleforthequalityofitscreditportfoliosandfollowsacreditprocessinvolvingdelegatedapprovalauthoritiesandcreditprocedures,theobjectiveofwhichistobuildandmaintainriskassetsofhighquality.Regularreviewsareundertakentoassessandevaluatelevelsofriskconcentrationsbymarketsectorandproduct.

Specialattentionispaidtoproblematicloans.Specialistunitsareestablishedbythegrouptoprovidecustomerswithsupportinordertohelpthemavoiddefaultwhereverpossible.

a Collateralandothercreditenhancements

Collateralcanbeanimportantmitigantofcreditrisk.Nevertheless,itisgroup’spolicytoestablishthatloansarewithinthecustomer’scapacitytorepayratherthantooverrelyonsecurity.Incertaincases,dependingonthecustomer’sstandingandthetypeofproduct,facilitiesmaybeunsecured.

Thegroupisrequiredtoimplementguidelinesontheacceptabilityofspecificclassesofcollateralorcreditriskmitigation,anddeterminesuitablevaluationparameters.Suchparametersareexpectedtobeconservative,reviewedregularlyandsupportedbyempiricalevidence.Securitystructuresandlegalcovenantsarerequiredtobesubjecttoregularreviewtoensurethattheycontinuetofulfiltheirintendedpurposeandremaininlinewithlocalmarketpractice.

Atbalancesheetdatetheprincipaltypeofcollateralheldconsistedofimmovableproperties.Collateralheldassecurityforfinancialassetsotherthanloansandadvancesisdeterminedbythenatureoftheinstrument.Financialinvestmentsaregenerallyunsecured.

b Creditqualityofloansandadvances

Group’scredit risk ratingprocessesaredesigned tohighlightexposureswhich requireclosermanagementattentionbecauseoftheirgreaterprobabilityofdefaultandpotentialloss.Riskratingsarereviewedregularlyand amendments, where necessary, are implemented promptly. The credit quality of unimpaired loans isassessedbyreferencetotheGroup’sstandardcreditratingsystem.

ii Creditexposure

Maximumexposuretocreditrisk

The group’s maximum exposure to credit risk on and off balance sheet financial instruments, before takingaccountofanycollateralheldorothercreditenhancementscanbeclassifiedinthefollowingcategories:

– FinancialassetsrecognisedonbalancesheetcompriseBalanceswithCentralBankofMalta,treasurybillsandcash,chequesincourseofcollection,financialassetsatfairvaluethroughprofitorloss,financialinvestments,loansandadvancesandacceptancesandendorsments.ThemaximumexposureoftheseFinancialassetstocreditrisk,equalstheircarryingamount.

– Financialguaranteesgranted.Themaximumexposuretocreditriskisthefullamountthatthegroupwouldhavetopayiftheguaranteesarecalledupon.

– Loancommitmentsandothercreditrelatedcommitmentsthatareirrevocableoverthelifeoftherespectivefacilities.Themaximumexposuretocreditriskisthefullamountofthecommittedfacilities.


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b Creditrisk(continued)

ii Creditexposure(continued)

Concentrationofcreditriskexistswhenanumberofcounterpartiesareengagedinsimilaractivities,oroperatein thesameindustrysectorandsotheirability tomeetcontractualobligationsissimilarlyaffectedbycertainconditions.

ThefollowingindustryconcentrationsareconsideredsignificantforLoansandadvancestocustomers:

2009 2008 ______________ ______________

§000 §000Group/BankAgriculture 4,568 4,440Fishing 4,417 1,890Miningandquarrying 2,634 8,849Manufacturing 134,891 156,693Electricity,gasandwatersupply 72,303 65,524Construction 390,176 419,090Wholesaleandretailtrade;repairs 360,423 351,282Hotelsandrestaurants;excludingrelatedconstructionactivities 204,153 196,571Transport,storageandcommunication 131,673 138,241Financialintermediation 7,070 8,582Realestate,rentingandbusinessactivities 188,330 180,081Publicadministration 101,446 57,842Education 2,061 3,044Healthandsocialwork 25,445 26,321Community,recreationalandpersonal serviceactivities 14,688 16,173Householdandindividuals 1,627,153 1,519,738 ______________ ______________

Grossloansandadvancestocustomers 3,271,431 3,154,361 _________ _________DebtsecuritiesandTreasuryBillsbyratingagency(S&PRatingAgency)designation:

Treasury Debt Bills securities Total ______________ ______________ ______________

§000 §000 §000Group

At31December2009AAA – 25,733 25,733AA-toAA+ – 42,032 42,032A-toA+ 64,633 271,915 336,548LowerthanA- – 31,379 31,379Unrated – 8,894 8,894 ______________ ______________ ______________ 64,633 379,953 444,586 _________ _________ _________At31December2008 AAA – 22,740 22,740AA-toAA+ – 39,895 39,895A-toA+ 14,895 329,494 344,389LowerthanA- – 10,054 10,054Unrated – 8,880 8,880 ______________ ______________ ______________ 14,895 411,063 425,958 _________ _________ _________

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iii Creditqualityoffinancialassets

Thefollowingtablesprovideadetailedanalysisofthecreditqualityofthegroup’slendingportfolio:

a Distributionofloansandadvancesbycreditquality

Loansand Loansand Loansand Loansand advancesto advancesto advancesto advancesto customers banks customers banks ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000

Group/Bank Grossloansandadvances:–neitherpastduenorimpaired 3,008,761 747,582 2,908,856 1,072,269–pastduebutnotimpaired 153,843 – 157,621 ––impaired 108,827 – 87,884 – ______________ ______________ ______________ ______________

3,271,431 747,582 3,154,361 1,072,269 _________ _________ _________ _________b Distributionofloansandadvancesneitherpastduenorimpaired

The credit quality of the portfolio of loans and advances that were neither past due nor impaired at 31December 2009 can be assessed by reference to group’s standard credit grading system. The followinginformationisbasedonthatsystem:

Loansand Loansand Loansand Loansand advancesto advancesto advancesto advancesto customers banks customers banks ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000

Group/BankSatisfactoryrisk 2,658,322 747,582 2,606,749 1,072,269Watchlistandspecialattention 220,168 – 185,242 –Sub-standardbutnotimpaired 130,271 – 116,865 – ______________ ______________ ______________ ______________

3,008,761 747,582 2,908,856 1,072,269 _________ _________ _________ _________c Loansandadvanceswhichwerepastduebutnotimpaired

Relatedcreditlosseswhichmayarisearepartlycoveredbycollectiveimpairmentallowances.

Loansandadvances tocustomers _________________________________

2009 2008 ______________ ______________

§000 §000Group/Bank Pastdueupto29days 88,645 98,451Pastdue30–59days 25,191 36,182Pastdue60–89days 22,715 11,419Pastdue90–179days 4,456 3,488Pastdueover180days 12,836 8,081 ______________ ______________

153,843 157,621 _________ _________Renegotiatedloansthatwouldotherwisebepastdueorimpairedtotalled§85,798,000(2008:§75,858,000).


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iiiCreditqualityoffinancialassets(continued)

d Individuallyimpairedgrossloansbyindustrysector

Loansandadvances tocustomers __________________________________

2009 2008 ______________ ______________

§000 §000Group/BankPersonalbanking 21,137 16,944Commercialandcorporate 78,559 61,633Other 9,131 9,307 ______________ ______________

108,827 87,884 _________ _________iv Movementinallowanceaccountsforloansandadvancestocustomers

Individually Individually assessed Collective assessed Collective allowances allowances allowances allowances ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Group/BankAt1January 28,365 13,756 32,942 13,604Additions 8,524 – 3,742 152Reversals (2,885) (1,331) (6,778) –Discountunwind (1,475) – (1,539) –Exchange – – (2) – ______________ ______________ ______________ ______________

At31December 32,529 12,425 28,365 13,756 _________ _________ _________ _________v Settlementrisk

Thegroup’sactivitiesmaygiverisetoriskatthetimeofsettlementoftransactionsandtrades.Settlementriskistheriskoflossduetofailureofacompanytohonouritsobligationstodelivercash,securitiesorotherassetsascontractuallyagreed.

Forcertain typesof transactions thegroupmitigates this riskbyconductingsettlements throughasettlement/clearingagenttoensurethatatradeissettledonlywhenbothpartieshavefulfilledtheircontractualsettlementobligations.

c Liquidityrisk

Liquidityriskistheriskthatthegroupdoesnothavesufficientfinancialresourcestomeetitsfinancialobligationswhentheyfalldueorwillhavetodosoatexcessivecost.Thisriskcanarisefrommismatchesintimingofcashflows.

The objective of the group’s liquidity and funding management is to ensure that all foreseeable fundingcommitmentsanddepositwithdrawalscanbemetwhendue.Itisthegroup’sobjectivetomaintainadiversifiedandstablefundingbasewiththeobjectiveofenablingthegrouptorespondquicklyandsmoothlytounforeseenliquidityrequirements.

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c Liquidityrisk(continued)

Thegroup’sliquidityandfundingmanagementprocessincludes:

–projectingcashflowsbyconsideringthelevelofliquidassetsnecessaryinrelationthereto;

–monitoringbalancesheetliquidityratiosagainstinternalandregulatoryrequirements;

–maintainingadiverserangeoffundingsourceswithadequateback-upfacilities;

–managingtheconcentrationandprofileofdebtmaturities;

–monitoringdepositorconcentrationinordertoavoidunduerelianceonlargeindividualdepositorsandensureasatisfactoryoverallfundingmix;and

–maintainingliquidityandfundingcontingencyplans.Theseplansidentifyearlyindicatorsofstressconditionsand describe actions to be taken in the event of difficulties arising from systematic or other crises whileminimisingadverselong-termimplicationsforthebusiness.

Currentaccountsandsavingsdepositspayableondemandoratshortnoticeformasignificantpartofthegroup’sfunding.Thegroupplacesconsiderableimportanceonmaintainingthestabilityofthesedeposits.

Cashflowspayablebythegroupunderfinancialliabilitiesbyremainingcontractualmaturities

Due Due Due between between Gross within 3and12 1and5 Dueafter nominal 3months months years 5years outflow ________________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000Group

At31December2009Amountsowedtobanks 168,127 578 10 375 169,090Amountsowedtocustomers 2,901,317 948,737 275,263 – 4,125,317Subordinatedliabilities 1,339 3,109 17,795 102,011 124,254Otherfinancialliabilities 32,711 859 553 – 34,123 ___________ ___________ ___________ ___________ ___________

3,103,494 953,283 293,621 102,386 4,452,784 ___ ___ ___ ___ ___Loancommitments 696,258 15,700 129,851 68,839 910,648 ___ ___ ___ ___ ___At31December2008 Amountsowedtobanks 450,947 15,501 60 606 467,114Amountsowedtocustomers 2,728,795 1,123,587 233,048 – 4,085,430Subordinatedliabilities 2,224 2,224 17,795 106,460 128,703Otherfinancialliabilities 29,303 2,527 1,464 – 33,294 ___________ ___________ ___________ ___________ ___________

3,211,269 1,143,839 252,367 107,066 4,714,541 ___ ___ ___ ___ ___Loancommitments 765,899 23,067 201,005 104,188 1,094,159 ___ ___ ___ ___ ___


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c Liquidityrisk(continued) Due Due Due between between Gross within 3and12 1and5 Dueafter nominal 3months months years 5years outflow ________________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000Bank

At31December2009Amountsowedtobanks 168,127 578 10 375 169,090Amountsowedtocustomers 2,941,711 969,086 275,263 – 4,186,060Subordinatedliabilities 1,339 3,109 17,795 102,011 124,254Otherfinancialliabilities 29,438 859 553 – 30,850 ___________ ___________ ___________ ___________ ___________

3,3,140,615 973,632 293,621 102,386 4,510,254 ___ ___ ___ ___ ___Loancommitments 696,258 15,700 129,851 68,839 910,648 ___ ___ ___ ___ ___At31December2008 Amountsowedtobanks 450,947 15,501 60 606 467,114Amountsowedtocustomers 2,784,702 1,126,162 233,048 – 4,143,912Subordinatedliabilities 2,224 2,224 17,795 106,460 128,703Otherfinancialliabilities 26,452 2,527 1,464 – 30,443 ___________ ___________ ___________ ___________ ___________

3,264,325 1,146,414 252,367 107,066 4,770,172 ___ ___ ___ ___ ___Loancommitments 765,899 23,067 201,005 104,188 1,094,159 ___ ___ ___ ___ ___Thebalancesintheabovetablewillnotagreedirectlytotheamountsinthefinancialpositionasthetableincorporatesallcashflows,onanundiscountedbasis,relatedtobothprincipalaswellasthoseassociatedwithallfuturecouponpayments.Furthermore,loancommitmentsarenotrecognisedontheStatementsofFinancialPosition.

Assetsavailabletomeettheseliabilities,andtocoveroutstandingcommitments,includebalanceswithCentralBankofMalta,TreasuryBillsandcash,chequesincourseofcollection,loanstobanksandtocustomersandmarketabledebtsecuritiesandundrawncreditlines.

Thegroupwouldmeetunexpectednetcashoutflowsbyaccessingadditionalfundingsourcessuchasinterbanklending,orbysellingsecuritiessuchasTreasuryBillsordebtsecurities.

d Marketrisk

Marketriskistheriskthatmovementsinmarketriskfactors,includingforeignexchangerates,interestratesandmarketpriceswillreducethegroup’sincomeorthevalueofitsportfolios.

Theobjectiveofthegroup’smarketriskmanagementistomanageandcontrolmarketriskexposuresinordertooptimisereturnonriskwhilemaintainingamarketprofileconsistentwiththegroup’sstatusasapremierprovideroffinancialproductsandservices.

ThegroupmanagesmarketriskthroughrisklimitsapprovedbyHSBCHoldingsplc.Limitsaresetbyproductandrisktypewithmarketliquiditybeingaprincipalfactorindeterminingtheleveloflimitsset.

Thegroup’sinterestrateexposurescomprisethoseoriginatinginitstreasuryactivitiesandthoseoriginatinginotherbankingactivities.Theprimarysourceofinterestrateriskoriginatinginotherbankingactivitiesarisesfromtheemploymentofnon-interestliabilitiessuchasshareholders’equityandcurrentaccounts,aswellasfixedrateloansandliabilitiesotherthanthosegeneratedbytreasurybusiness.Thegroup’sALCOassessestheinterestrateriskswhichariseinthebusiness.TheprimaryobjectiveofsuchinterestrateriskmanagementistolimitpotentialadverseeffectsofinterestratemovementsonNetinterestincome.

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d Marketrisk(continued) i Fairvalueandpriceverificationcontrol

Wherecertainfinancialinstrumentsarecarriedonthegroup’sbalancesheetatfairvalues,thevaluationandtherelatedpriceverificationprocessesaresubject to independentvalidations.Thedeterminationof fairvalues isthereforeasignificantelementinthereportingofthegroup’sglobalmarketactivities.

Certainofthegroup’sfinancialassetsandliabilitiesarecarriedatcostoramortisedcostandnotatfairvalue.

a Investments–Debtandotherfixedincomeinstrumentsheld-to-maturity

Thiscategoryofassetiscarriedatamortisedcostandamountsto§8,894,000asat31December2009(2008:§25,240,000). Fair value based on quoted market prices at the balance sheet date without deduction fortransactioncostsamountsto§8,952,000asat31December2009(2008:§25,160,000).

b Investments–Equityandothernon-fixedincomeinstrumentsavailable-for-sale

Certainunlistedequityinvestmentsarecarriedatcostandamountto§354,000asat31December2009(2008:§459,000). There is no market for these investments and there have not been any recent transactions thatprovideevidenceofthecurrentfairvalue.Discountedcashflowtechniquesdonotprovideareliablemeasureofthefairvalueoftheseinvestments.

c Loansandadvancestobanksandcustomers

Thiscategoryofassetisreportednetofimpairmentallowancestoreflecttheestimatedrecoverableamounts.Asat31December2009thegroup’scarryingamountwas§3,974,059,000(2008:§4,184,509,000).

TheLoansandadvancestocustomerscategoryofassetamountsto§3,226,477,000(2008:§3,112,240,000).This carrying value approximates to fair value in the case of loans which are repriceable at the group’sdiscretion.Theseloansconstituteasignificantelementofthetotalloanportfolio.

TheLoansandadvances tobankscategoryofassetamounts to§747,582,000 (2008:§1,072,269,000).ForLoans and advances to banks within the ‘less than one year’ maturity band, fair value is taken to be theamountcarriedatreportingdate.Asat31December2009,91percentofLoansandadvancestobankshadacontractualrepricingwithinthe‘less thanthreemonths’band.Interestratesontheseloansandadvancesreflectcurrentmarketrates,andthereforethecarryingamountapproximatestofairvalue.

d Assetsheldforsale

Assetsacquiredinsatisfactionofdebtamountingto§8,772,000asat31December2009(2008:§7,519,000)consist mainly of repossessed immovable property measured at the lower of cost and their forced salesvalue.

e Amountsowedtobanksandcustomers

Thiscategoryofliabilityiscarriedatamortisedcostandamountsto§4,255,440,000asat31December2009(2008: §4,478,817,000). Of this liability, 86 per cent has contractual repricing within the ‘less than threemonths’band,5per cent repriceswithin the ‘between threemonths andoneyear’ bandwhilst 9per centrepriceswithinthe‘betweenoneyearandfiveyears’band.Fordemanddepositsanddepositsmaturingwithinoneyear,fairvalueistakentobetheamountpayableondemandatreportingdate.

f Subordinatedliabilities

Thiscategoryofliabilityiscarriedatamortisedcost.Fairvaluebasedonquotedmarketpricesatreportingdate without deduction for transaction costs amounts to §91,250,000 as at 31 December 2009 (2008:§89,800,000).


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d Marketrisk(continued) ii Basesofvaluingfinancialassetsandliabilitiesmeasuredatfairvalue

For all financial instruments where fair values are determined by reference to externally quoted prices orobservable pricing inputs to models, independent price determination or validation is utilised. In inactivemarkets,directobservationofa tradedpricemaynotbepossible. In thesecircumstances,HSBCwill sourcealternative market information to validate the financial instrument’s fair value, with greater weight given toinformationthatisconsideredtobemorerelevantandreliable.

Valuationtechniques ___________________________________________________________________

With Quoted Using significant

market observable unobservable price inputs inputs ______________ ______________ ______________ ______________

Level1 Level2 Level3 Total ______________ ______________ ______________ ______________

§000 §000 §000 §000GroupAt31December2009AssetsFinancialassetsheldfortrading – 11,746 – 11,746Financialassetsdesignatedatfairvaluethroughprofitorloss 248,553 – – 248,553Financialinvestments:available-for-sale 467,339 2,742 – 470,081

LiabilitiesFinancialliabilitiesheldfortrading – 11,044 – 11,044Liabilitiestocustomersunderinvestmentcontracts 16,853 – – 16,853





§000 §000 §000 §000GroupAt31December2008AssetsFinancialassetsheldfortrading 391 11,432 – 11,823Financialassetsdesignatedatfairvaluethroughprofitorloss 279,714 – – 279,714Financialinvestments:available-for-sale 398,894 5,778 – 404,672

LiabilitiesFinancialliabilitiesheldfortrading – 11,381 – 11,381Liabilitiestocustomersunderinvestmentcontracts 15,122 – – 15,122

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d Marketrisk(continued) ii Basesofvaluingfinancialassetsandliabilitiesmeasuredatfairvalue(continued)





§000 §000 §000 §000BankAt31December2009AssetsFinancialassetsheldfortrading – 11,964 – 11,964Financialinvestments:available-for-sale 368,639 2,742 – 371,381

LiabilitiesFinancialliabilitiesheldfortrading – 11,046 – 11,046





§000 §000 §000 §000BankAt31December2008AssetsFinancialassetsheldfortrading 391 11,666 – 12,057Financialinvestments:available-for-sale 380,998 5,778 – 386,776

LiabilitiesFinancialliabilitiesheldfortrading – 12,375 – 12,375


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d Marketrisk(continued) iiiValueatrisk(VAR)

One of the principal tools used by the group to monitor and limit market risk exposure is VAR. VAR is atechniquethatestimatespotentiallossesthatcouldoccuronriskpositionsasaresultofmovementsinmarketratesandpricesoveraspecifiedtimehorizonandtoagivenlevelofconfidence.

TheVARmodelsusedbythegrouparepredominantlybasedonhistoricalsimulation.Thehistoricalsimulationmodels derive plausible future scenarios from historical market rate time series, taking account of inter-relationships betweendifferentmarkets and rates, for example, between interest rates and foreign exchangerates.

Thehistoricalsimulationmodelsusedbythegroupincorporatethefollowingfeatures:

– potentialmarketmovementsarecalculatedwithreferencetodatafromthelasttwoyears;

– historicalmarketratesandpricesarecalculatedwithreferencetoforeignexchangeratesandcommodity prices,interestrates,equitypricesandtheassociatedvolatilities;

– VARiscalculatedtoa99percentconfidencelevel;and

– VARiscalculatedforaone-dayholdingperiod.

Althoughavaluableguidetorisk,VARshouldalwaysbeviewedinthecontextofitslimitations,forexample:

– the use of historical data as a proxy for estimating future events may not encompass all potential events,particularlythosewhichareextremeinnature;

– theuseofaone-dayholdingperiodassumesthatallpositionscanbeliquidatedorhedgedinoneday.This maynotfullyreflectthemarketriskarisingattimesofsevereilliquidity,whenaone-dayholdingperiodmay beinsufficienttoliquidateorhedgeallpositionsfully;

– theuseofa99percentconfidencelevel,bydefinition,doesnottakeintoaccountlossesthatmightoccur beyondthislevelofconfidence;and

– VAR is calculated on the basis of exposures outstanding at the close of business and therefore does not necessarilyreflectintra-dayexposures.

ThegrouprecognisestheselimitationsbyaugmentingitsVARlimitswithotherpositionandsensitivitylimitstructures.

TheVARforthegroupwasasfollows: 2009 2008 ______________ ______________

§000 §000

At31December 942 1,176Average 1,015 559Minimum 734 328Maximum 1,289 1,176

TheVARat31December2009fellcomparedwith31December2008.ThemajorcauseofthiswasareductioninriskpositionsarisingfromtheGroup’sbalancesheetmanagementactivities.

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d Marketrisk(continued) iv Sensitivityofnetinterestincome

Aprincipalpartofallgroup’smanagementofmarketriskistomonitorthesensitivityofprojectednetinterestincomeundervarying interest rate scenarios (simulationmodelling).For simulationmodelling, thebusinessusesacombinationofscenariosrelevanttolocalbusinessesandlocalmarketsandstandardscenarioswhicharerequiredthroughoutthegroup.

Thetablebelowsetsouttheimpactonfuturenetincome/netassetsofanincremental50basispointsparallelfallorriseinallyieldcurvesworldwideonthefirstdayofthefollowingyearbasedoncurrentfinancialposition/riskprofiles:

Impacton Impacton profitfor Impacton profitfor Impacton theyear netassets theyear netassets ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000

Group+50basispoints 6,056 2,984 6,019 3,713-50basispoints (11,643) (8,571) (6,019) (3,713)

v Currencyconcentration Other Other Euro currencies Total Euro currencies Total ______________ ______________ ______________ ______________ ______________ ______________

2009 2009 2009 2008 2008 2008 ______________ ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000 §000 Group

Assets BalanceswithCentral BankofMalta,Treasury Billsandcash 170,662 2,009 172,671 128,543 2,139 130,682 Chequesincourseof collection 10,063 701 10,764 8,444 864 9,308 Financialassetsheldfor trading 9,093 2,653 11,746 6,357 5,466 11,823 Financialassetsdesignated atfairvaluethrough profitorloss 183,308 65,245 248,553 216,874 62,840 279,714 Financialinvestments 444,066 34,909 478,975 370,198 59,714 429,912 Loansandadvancesto banks 199,705 547,952 747,657 546,284 526,022 1,072,306 Loansandadvancesto customers 3,195,339 31,138 3,226,477 3,085,245 26,995 3,112,240 Otherassets 218,158 2,799 220,957 245,991 4,112 250,103 ______________ ______________ ______________ ______________ ______________ ______________

Totalassets 4,430,394 687,406 5,117,800 4,607,936 688,152 5,296,088 ______________ ______________ ______________ ______________ ______________ ______________


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d Marketrisk(continued)

v Currencyconcentration(continued) Other Other Euro currencies Total Euro currencies Total ______________ ______________ ______________ ______________ ______________ ______________

2009 2009 2009 2008 2008 2008 ______________ ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000 §000 Group Liabilitiesandequity Financialliabilitiesheld fortrading 9,009 2,035 11,044 5,829 5,552 11,381 Amountsowedtobanks 161,550 7,221 168,771 429,801 32,384 462,185 Amountsowedto customers 3,484,990 601,679 4,086,669 3,431,309 585,323 4,016,632 Liabilitiestocustomers underinvestmentcontracts 16,853 – 16,853 15,122 – 15,122 Liabilitiesunderinsurance contractsissued 351,513 – 351,513 311,250 – 311,250 Subordinatedliabilities 87,827 – 87,827 87,777 – 87,777 Otherliabilities 83,990 4,546 88,536 103,542 5,722 109,264 Totalequity 306,587 – 306,587 282,477 – 282,477 ______________ ______________ ______________ ______________ ______________ ______________

Totalliabilities andequity 4,502,319 615,481 5,117,800 4,667,107 628,981 5,296,088 ______________ ______________ ______________ ______________ ______________ ______________

Other Other Euro currencies Total Euro currencies Total ______________ ______________ ______________ ______________ ______________ ______________

2009 2009 2009 2008 2008 2008 ______________ ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000 §000 Bank Assets BalanceswithCentral BankofMalta,Treasury Billsandcash 170,661 2,009 172,670 128,542 2,139 130,681 Chequesincourseof collection 10,063 701 10,764 8,444 864 9,308 Financialassetsheldfor trading 9,093 2,871 11,964 6,357 5,700 12,057 Financialinvestments 346,579 33,696 380,275 353,252 58,764 412,016 Loansandadvancesto banks 199,630 547,952 747,582 546,247 526,022 1,072,269 Loansandadvancesto customers 3,195,339 31,138 3,226,477 3,085,245 26,995 3,112,240 Otherassets 173,847 2,559 176,406 197,343 2,769 200,112 ______________ ______________ ______________ ______________ ______________ ______________

Totalassets 4,105,212 620,926 4,726,138 4,325,430 623,253 4,948,683 ______________ ______________ ______________ ______________ ______________ ______________ Liabilitiesandequity Financialliabilitiesheld fortrading 9,009 2,037 11,046 5,829 6,546 12,375 Amountsowedtobanks 161,550 7,221 168,771 429,801 32,384 462,185 Amountsowedto customers 3,542,083 604,212 4,146,295 3,485,730 588,145 4,073,875 Subordinatedliabilities 87,827 – 87,827 87,777 – 87,777 Otherliabilities 61,257 4,546 65,803 82,284 5,715 87,999 Totalequity 246,396 – 246,396 224,472 – 224,472 ______________ ______________ ______________ ______________ ______________ ______________

Totalliabilities andequity 4,108,122 618,016 4,726,138 4,315,893 632,790 4,948,683 ______________ ______________ ______________ ______________ ______________ ______________

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e Insurancerisk

The insurance risk of the group represents that faced by the life insurance subsidiary company. The principalinsuranceriskis that theactualclaimsandbenefitpaymentsmayexceedthecarryingamountof the insuranceliabilities.Thegroupmanagesitsinsurancerisksthroughtheapplicationofformalunderwriting,reinsuranceandclaimsproceduresdesignedtoensurecompliancewithregulations.

Thefollowingtableprovidesananalysisoftheinsuranceriskexposuresbytypeofbusiness: Group ________________________________

2009 2008 ______________ ______________

§000 §000 Lifeinsurance(non-linked)

Insurancecontractswithdiscretionaryparticipationfeature 224,988 204,174Termassuranceandotherlong-termcontracts 37,669 47,414 ______________ ______________

Totalnon-linked 262,657 251,588 ______________

______________

Life(linked) 88,856 59,662 Investmentcontracts 16,853 15,122

______________

______________

Totalinsuranceliabilities 368,366 326,372 _________ _________

Presentvalueofin-forcelong-terminsurancebusiness(‘PVIF’)

Thegrouplifeinsurancebusinessisaccountedforusingtheembeddedvalueapproach,which,interalia,provides acomprehensiveframeworkfortheevaluationofinsuranceandrelatedrisks.

The following table shows the effect on the PVIF of reasonably possible changes in the main economic assumptionsacrossthelifeinsurancebusiness: PVIFImpact ________________________________

2009 2008 ______________ ______________

Assumptions Movement §000 §000 Aspublished

Riskfreerate +100basispoints 2,897 2,061Riskfreerate -100basispoints (822) (484)Riskadjusteddiscountrate +100basispoints (1,061) (788)Riskadjusteddiscountrate -100basispoints 1,171 858Expensesinflation +100basispoints (327) (310)Expensesinflation -100basispoints 298 285Lapserate +100basispoints (452) (255)Lapserate -100basispoints 479 269

Thegroup’slifeinsurancebusinessisexposedtoarangeoffinancialrisks,includingmarketrisk,creditriskandliquidityrisk.Thenatureandmanagementoftheserisksisdescribedbelow.

i Marketrisk

a Interestraterisk

Lifeinsurancebusinessisexposedtointerestrateriskwhenthereisamismatchintermsofdurationoryieldsbetween assets and liabilities. The group manages the interest rate risk arising from its insuranceunderwritingbusinessbymatchingestimatedfuturecashoutflowstobepaidtopolicyholdersbyexpectedcashflowsfromassets.Thepoolofinvestmentsbackingliabilitiesismanagedwithinstrictdurationlimitsthatensurethattheneteffectofinterestratechangesonassetsandliabilitiesismanageable.

Interestrateriskisalsoassessedbymeasuringtheimpactofdefinedmovementsininterestyieldcurveson theprofitsaftertaxandnetassetsoftheinsuranceunderwritingbusiness.


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e Insurancerisk(continued)

i Marketrisk(continued)

b Equitypricerisk

The group manages the equity risk arising from its holdings of equity securities by setting limits on themaximummarketvalueofequities that the insuranceunderwritingbusinessmayhold.Equityrisk isalsomonitoredbyestimatingtheeffectofpredeterminedmovementsinequitypricesontheprofit,andtotalnetassetsoftheinsuranceunderwritingbusiness.

Animmediateandpermanentmovementininterestyieldcurvesandequitypricesasatreportingdatewouldhavethefollowingimpactontheprofitfortheyearandnetassetsatthatdate:

2009 2008 ________________________________ ________________________________

Impacton Impacton profitfor Impacton profitfor Impacton theyear netassets theyear netassets ______________ ______________ ______________ ______________

§000 §000 §000 §000

+100basispointsshiftinyieldcurves (210) (210) 1,000 1,000

-100basispointsshiftinyieldcurves (281) (281) 67 67

+10percentincreaseinequityprices 368 368 749 749

-10percentincreaseinequityprices (546) (546) (1,996) (1,996)

iiCreditrisk

Thegroup’slifeinsuranceunderwritingbusinessisexposedtocreditriskinrespectofitsinvestmentportfoliosand reinsurance transactions. The Investment Committee is responsible for the quality and performance ofthe investment portfolios and follows a credit process involving delegated approval authorities and creditprocedures,theobjectiveofwhichistobuildandmaintainriskassetsofhighquality.

The following tablepresents the analysisofdebt securities andTreasuryBillswithin insurancebusinessbyratingagency(S&PRatingAgency):

Treasury Debt Bills securities Total ______________ ______________ ______________

§000 §000 §000

At31December2009 AAA – 20,228 20,228 AA-toAA+ – 16,486 16,486 A-toA+ 5,981 131,960 137,941 LowerthanA- – 11,510 11,510 Unrated – 12,045 12,045______________ ______________ ______________

5,981 192,229 198,210 _________ _________ _________ At31December2008 AAA – 19,938 19,938 AA-toAA+ – 9,869 9,869 A-toA+ 22,369 65,535 87,904 LowerthanA- – 11,028 11,028 Unrated – 12,520 12,520______________ ______________ ______________

22,369 118,890 141,259 _________ _________ _________

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e Insurancerisk(continued)

iiiLiquidityrisk

It isaninherentcharacteristicofalmostall insurancecontractsthat thereisuncertaintyovertheamountandthe timing of settlement of claims liabilities that may arise, and this leads to liquidity risk. As part of themanagementof thisexposure,estimatesareprepared formost linesof life insurancebusinessofcash flowsexpectedtoarisefrominsurancefundsatreportingdate.

Thefollowingtableshowstheexpectedmaturityofinsuranceliabilitiesat31December2009:

Due Due Due between between Gross within 3and12 1and5 Dueafter nominal 3months months years 5years outflow ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000

At31December2009Liabilitiestocustomersunderinvestmentcontracts – – 1,753 15,100 16,853Liabilitiesunderinsurancecontractsissued 440 – 66,284 282,034 3348,758

At31December2008Liabilitiestocustomersunderinvestmentcontracts – – 1,380 13,742 15,122Liabilitiesunderinsurancecontractsissued 53 777 59,670 250,359 310,859

Allsensitivityanalysisdisclosedinthisnoteareillustrativeonlyandemploysimplifiedscenarios.Effectsmaynotbelinearandthereforetheresultscannotbeextrapolated.Theydonotallowfortheeffectofmanagementactionstakentomitigatetheseeffects,nordotheytakeaccountofanyotherbehaviouralaspects.

5 Capitalmanagementandallocation

HSBC’s capital management approach is driven by its strategy taking into account the regulatory, economic andcommercialenvironmentinwhichitoperates.HSBC’scapitalmanagementpolicyistomaintainastrongcapitalbasetosupportthedevelopmentofitsbusinessandtomeetregulatorycapitalrequirementsatalltimes.

CapitalmanagementismonitoredbyALCO.AnannualgroupcapitalplanispreparedandapprovedbytheBoardwiththeobjectiveofmaintainingboththeoptimalamountofcapitalandthemixbetweenthedifferentcomponentsofcapital.Thegrouprecognisestheimpactonshareholderreturnsbythelevelofequitycapitalemployedandseekstomaintainaprudentbalancebetweentheadvantagesandflexibilityaffordedbyastrongcapitalpositionandthehigherreturnsonequityfromincreasedleverage.

TheMaltaFinancialServicesAuthoritysupervisesthegrouponaconsolidatedbasisand,assuch,receivesinformationonthecapitaladequacyof,andsetscapitalrequirementsfor,thegroupasawhole.

In implementing the EU’s directives which regulate capital requirements, the Malta Financial Services Authorityrequireseachbankandbankinggrouptomaintainanindividuallyprescribedratioof totalcapital torisk-weightedassets.

Thegroup’scapitalbaseisdividedintwotiers,asdefinedintheOwnFundsofCreditInstitutionsAuthorisedUndertheBankingAct1994BR03:

– Originalownfundscomprisesharecapital,retainedearningsandreservescreatedbyappropriationsofretainedearnings.Thebookvalueofintangibleassetsaredeductedinarrivingatoriginalownfundscalculations.

– Additionalownfundscomprisequalifyingsubordinatedloancapital,collectiveimpairmentallowances,andunrealisedgainsarisingonthefairvaluationoffinancialinstrumentsheldasavailable-for-sale.Additionalownfundsalsoincludereservesarisingfromtherevaluationofproperties.


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5 Capitalmanagementandallocation(continued)

Thegroup’sriskandcapitalmanagementpolicyisbasedontheBaselIIframeworkwhichisstructuredonthreepillars.ThesehavebeenadoptedbytheMaltaFinancialServicesAuthoritybywayofbankingrulesasfollows:

– Pillar1-BR04(CapitalRequirementsofCreditInstitutionsAuthorisedUndertheBankingAct1994)definestheminimumcapitalresoucesrequirementsforcredit,counterparty,marketandoperationalrisks.TheserequirementsareexpressedintermsofRiskWeightedAssets.ThegrouphasadoptedtheStandardisedApproachindeterminingthematerialrisksonitsbankingoperationsandoperationalrisk.

Bankingoperationsarecategorisedaseithertradingbookorbankingbookandrisk-weightedassetsaredeterminedaccordingly.Bankingbookrisk-weightedassetsaremeasuredbymeansofahierarchyofriskweightingsclassifiedaccordingtothenatureofeachassetandcounterparty,takingintoaccountanyeligiblecollateralorguarantees.Bankingbookcontingentliabilitiesandcommitmentsgivingrisetocredit,foreignexchangeorinterestrateriskareassignedweightsappropriatetothecategoryofthecounterparty,takingintoaccountanyeligiblecollateralorguarantees.Tradingbookrisk-weightedassetsaredeterminedbytakingintoaccountmarketrelatedriskssuchasforeignexchange,interestrateandequitypositionrisksandcounterpartyrisk.

OperationalriskcapitalrequirementsarecalculatedundertheStandardisedApproach,asapercentageoftheaverageofthelastthreefinancialyears’grossrevenues.

– Pillar2-BR12(TheSupervisoryReviewProcessofCreditInstitutionsAuthorisedUndertheBankingAct1994)involvesboththecreditinstitutionandtheregulatortakingaviewwhetherthecreditinstitutionshouldholdadditionalcapitalagainstrisksnotcoveredinpillar1.TheobjectiveoftheRuleistoensurethatcreditinstitutionshavesufficientcapitaltosupportallmaterialriskswhichtheirbusinessexposesthemtoandaimstoreinforcethelinkbetweenriskandcapital.Anintegralpartofpillar2processistheInternalCapitalAdequacyAssessmentProcess(‘ICAAP’)whichisthecreditinstitution’sself-assessmentofthelevelsofcapitalthatitneedstohold.ThegeneralframeworkforthetechnicaldevelopmentoftheICAAPsubmissionwasapprovedbytheBoardinJuly2009,followedbyasupervisoryreviewduringthelastquarter.TheresultsoftheICAAPshowthatthegroupmaintainsacomfortablelevelofexcesscapitalandsubstantialliquiditythatensurestheflexibilityandresourcesneededtoachievethelongtermstrategicobjectivesofthegroupevenundermarketstresssituations.

– Pillar3-BR7(PublicationofAnnualReportandAuditedFinancialStatementsofCreditInstitutionsAuthorisedUndertheBankingAct1994)isrelatedtomarketdisciplineandaimstomakecreditinstitutionsmoretransparentbyrequiringthemtopublishspecific,prescribeddetailsoftheirrisks,capitalandriskmanagementundertheBaselIIframework.ThegroupisconsideredasignificantlocalsubsidiaryofHSBCHoldingsplcandintermsofarticle23oftheRuleexemptedfromfullriskdisclosurerequirementsunderpillar3.HSBCpublishespillar3disclosuresasaseparatedocumentontheGroupInvestorRelationswebsite.

Group ____________________________________________________________________

Face Weighted Face Weighted value amount value amount ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000BalanceswithCentralBankofMalta,TreasuryBillsandcash 172,671 – 130,682 –Chequesincourseofcollection 10,764 10,764 9,308 9,308Loansandadvancestobanks 747,657 150,049 1,072,272 214,454Loansandadvancestocustomers 3,226,477 2,100,147 3,125,996 1,974,942Debtsecuritiesandequities 381,862 80,285 413,826 100,051Investmentininsurancecompany 28,578 28,578 28,578 28,578Propertyandequipmentandinvestmentproperty 77,051 77,051 53,735 53,735Otherassets 44,067 36,926 69,408 51,226Prepaymentsandaccruedincome 33,748 29,872 44,852 35,861 ______________ ______________ ______________ ______________

4,722,875 2,513,672 4,948,657 2,468,155 _________ _________Contingentliabilitiesandcommitments 1,145,952 183,385 1,240,497 281,059 _________ ______________ _________ ______________

Creditandcounterpartyrisk 2,697,057 2,749,214 _________ _________

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Group ____________________________________________________________________


2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000

Creditandcounterpartyrisk 2,697,057 2,749,214Operationalrisk 304,276 304,652Marketrisk 23,596 34,700 ______________ ______________

Totalriskweightedassets 3,024,929 3,088,566 _________ _________OwnfundsOriginalownfundsSharecapital 87,552 87,552Retainedearnings 143,526 137,694Intangibleassets (1,803) (1,914) ______________ ______________

229,275 223,332 _________ _________AdditionalownfundsRevaluationreserve 25,825 15,131Collectivelyassessedallowances 12,425 13,756Subordinatedliabilities 87,827 87,777 ______________ ______________

126,077 116,664 _________ _________Totalownfunds 355,496 339,996 _________ _________Capitaladequacyratio 11.75% 11.00% _________ _________ Bank ____________________________________________________________________


2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000BalanceswithCentralBankofMalta,TreasuryBillsandcash 172,670 – 130,681 –Chequesincourseofcollection 10,764 10,764 9,308 9,308Loansandadvancestobanks 747,582 150,049 1,072,269 214,454Loansandadvancestocustomers 3,226,477 2,100,147 3,125,996 1,974,942Debtsecuritiesandequities 380,275 78,698 412,016 98,249Sharesinsubsidiarycompanies 35,707 35,707 35,707 35,707Propertyandequipmentandinvestmentproperty 77,135 77,135 82,378 82,378Otherassets 44,141 30,499 47,298 29,709Prepaymentsandaccruedincome 30,006 29,239 44,598 35,377 ______________ ______________ ______________ ______________

4,724,757 2,512,238 4,960,251 2,480,124 _________ _________Contingentliabilitiesandcommitments 1,145,952 183,385 1,240,520 281,070 _________ ______________ _________ ______________

Creditandcounterpartyrisk 2,695,623 2,761,194 _________ _________Creditandcounterpartyrisk 2,695,623 2,761,194Operationalrisk 301,805 293,500Marketrisk 23,596 34,700 ______________ ______________

Totalriskweightedassets 3,021,024 3,089,394 _________ _________


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Bank ____________________________________________________________________


2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000OwnfundsOriginalownfundsSharecapital 87,552 87,552Retainedearnings 133,814 121,606Intangibleassets (1,741) (1,797) ______________ ______________

219,625 207,361 _________ _________AdditionalownfundsRevaluationreserve 25,030 15,296Collectivelyassessedallowances 12,425 13,756Subordinatedliabilities 87,827 87,777 ______________ ______________

125,282 116,829 _________ _________Totalownfunds 345,267 324,190 _________ _________Capitaladequacyratio 11.42% 10.49% _________ _________

6 Interestreceivableandsimilarincome

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Onloansandadvancestobanks 6,915 34,710 6,915 34,710Onloansandadvancestocustomers 146,361 182,757 146,354 182,633OnbalanceswithCentralBankofMalta 1,009 3,412 1,009 3,412OnTreasuryBills 1,123 3,152 1,123 3,152 ______________ ______________ ______________ ______________

155,408 224,031 155,401 223,907 ______________ ______________ ______________ ______________

Ondebtandotherfixedincomeinstruments 15,864 23,983 13,650 23,924Amortisationofnetpremiums (2,234) (2,504) (2,115) (2,548) ______________ ______________ ______________ ______________

13,630 21,479 11,535 21,376 ______________ ______________ ______________ ______________

169,038 245,510 166,936 245,283 _________ _________ _________ _________Interestreceivableandsimilarincomefrom:–Groupcompanies 6,920 34,446 6,920 34,446 _________ _________ _________ _________–subsidiarycompanies – – 2 5 _________ _________ _________ _________Discountunwindonimpairedloansandadvancestocustomersincludedininterestreceivableonloansandadvancestocustomersamountedto§1,475,000(2008:§1,539,000).

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7 Interestpayable

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Onamountsowedtobanks 1,304 8,152 1,304 8,152Onamountsowedtocustomers 58,249 111,131 59,500 113,288Onsubordinatedliabilities 4,503 3,167 4,503 3,167Onfinanceleases 12 16 12 16 ______________ ______________ ______________ ______________

64,068 122,466 65,319 124,623 _________ _________ _________ _________Interestpayableto:–Groupcompanies 1,210 7,160 1,210 7,160 _________ _________ _________ _________–subsidiarycompanies – – 1,251 2,157 _________ _________ _________ _________

8 Netfeeandcommissionincome

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Netfeeandcommissionincomethatisnotan integralpartoftheeffectiveinterestrateon:– financialassetsorliabilitesnotatfairvalue throughprofitorloss 21,572 19,640 21,572 19,640– trustandotherfiduciaryactivitiesthatresult intheholdingorinvestingofassetsonbehalfof individualsandotherinstitutions 9,509 10,942 4,774 3,833–other 1,283 1,183 3,165 3,070 ______________ ______________ ______________ ______________

32,364 31,765 29,511 26,543 _________ _________ _________ _________Netfeeandcommissionincomefrom:–Groupcompanies 1,094 727 802 552 _________ _________ _________ _________–subsidiarycompanies – – 3,534 3,643 _________ _________ _________ _________Netfeeandcommissionincomeinclude§3,071,000(2008:§2,159,000)derivedfrominvestmentservicesactivities.

9 Dividendincome

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Available-for-salefinancialassets 2 29 2 29Financialassetsheldfortrading 41 40 41 40Subsidiarycompanies – – 10,538 1,435 ______________ ______________ ______________ ______________

43 69 10,581 1,504 _________ _________ _________ _________


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10 Tradingprofits

2009 2008 ______________ ______________

§000 §000Group/BankProfitonforeignexchangeactivities 7,063 7,932Netgains/(losses)onfinancialinstrumentsatfairvaluethroughprofitorloss 158 (130) ______________ ______________

7,221 7,802 _________ _________11 Netgainsonsaleofavailable-for-salefinancialassets

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Netgainsondisposal – 1,439 – 1,439Netrevaluationgainstransferredfromequity 1,268 1,348 1,184 1,286 ______________ ______________ ______________ ______________

1,268 2,787 1,184 2,725 _________ _________ _________ _________12 Netoperatingincome

Net operating income of §159,659,000 (2008: §188,301,000) includes net income from Life insurance businessanalysedasfollows: Group ________________________________

2009 2008 ______________ ______________

§000 §000Netfeeandcommissionincome 302 156Netincomefrominsurancefinancialinstrumentsdesignatedatfairvaluethroughprofitorloss 26,717 (29,407)Netearnedinsurancepremiums 52,878 58,032Netotheroperatingincome (3,296) 28,016 ______________ ______________

76,601 56,797Netinsuranceclaimsincurredandmovementinpolicyholders’liabilities (63,570) (37,570) ______________ ______________

13,031 19,227 _________ _________a Netearnedinsurancepremiums Group ________________________________

2009 2008 ______________ ______________

§000 §000LifeinsuranceGrossearnedpremium 55,898 60,851Reinsurancepaid (3,020) (2,819) ______________ ______________

52,878 58,032 _________ _________

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12 Netoperatingincome(continued)

b Netinsuranceclaimsincurredandmovementinpolicyholders’liabilities

Group ___________________________________________________________________________________________________

Gross Reinsurance Net Gross Reinsurance Net ______________ ______________ ______________ ______________ ______________ ______________

2009 2009 2009 2008 2008 2008 ______________ ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000 §000LifeinsuranceClaimspaid 18,847 (600) 18,247 18,082 (17) 18,065Changeintechnicalprovision 39,068 5,721 44,789 20,839 (773) 20,066Changeinclaimsprovision 1,785 (1,251) 534 311 (872) (561) ______________ ______________ ______________ ______________ ______________ ______________

59,700 3,870 63,570 39,232 (1,662) 37,570 _________ _________ _________ _________ _________ _________13 Employeecompensationandbenefits

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Wages,salariesandallowances 44,185 45,289 441,735 42,991Definedcontributionsocialsecuritycosts 2,403 2,517 2,303 2,401Retirementbenefits 2,073 6,358 2,073 6,358Share-basedpayments 591 1,313 569 1,241 ______________ ______________ ______________ ______________

49,252 55,477 46,680 52,991 _________ _________ _________ _________ Number Number Number NumberAveragenumberofemployees–executiveandseniormanagerial 256 260 237 244–othermanagerial,supervisoryandclerical 1,281 1,355 1,240 1,299–others 51 56 51 56 ______________ ______________ ______________ ______________

1,588 1,671 1,528 1,599 _________ _________ _________ _________Inordertoaligntheinterestsofstaffwiththoseofshareholders,shareoptionsinordinarysharesoftheultimateparentcompanyareofferedtogroupemployeesunderall-employeeshareplansandachievementsharesawardedtogroupmiddlemanagementandabove,underdiscretionaryincentiveplans.Thecompanyofferedtwotypesofshareoptionschemestoitsemployees.

UndertheHSBCHoldingssavings-relatedshareoptionplans,optionsareofferedatnilconsiderationatanexercisepricediscountedatarateof20percentofthemarketvalueimmediatelyprecedingthedateofinvitation.Theoptionsareexercisableeitheronthefirst,thirdorfifthanniversaryofthecommencementoftherelevantsavingscontract.

Optionsawardedupto31December2004underthediscretionaryHSBCHoldingsGroupShareOptionPlanwereofferedfornilconsiderationandgrantedatmarketvalueandarenormallyexercisablebetweenthethirdandtenthanniversariesofthedateofgrant,subjecttovestingconditions.

SharesinHSBCHoldingsplcawardedunderthediscretionaryHSBCHoldingsGroupAchievementShareSchemeareofferedatnilconsideration.SharesarereleasedtoindividualsafterthreeyearsprovidedtheyremainemployedbytheGroup.Thereisnoperformanceconditionattachedtotheseawards.Forthosereceivingshareawards,additionalawardswillbemadeduringthethreeyearlifeoftheaward,representingequivalentvaluetodividendsreinvestedinshares.Attheendofthethreeyearperiod,thevalueoftheawardwillhavegrowninlinewithHSBC’stotalshareholderreturnoverthesameperiod.


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13 Employeecompensationandbenefits(continued)

Group ____________________________________________________________________

Weighted Weighted average average exercise exercise Options price(§) Options price(§) ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

SavingsrelatedShareOptionPlansOutstandingat1January 237,623 8.51 330,277 8.57Grantedduringtheyear 218,509 8.61 193,096 10.35Effectofrightsissue 51,664 8.54 – –Exercisedduringtheyear (11,130) 6.02 (189,990) 6.26Closedduringtheyear (399,907) 8.55 (95,760) 9.76 ______________ ______________

Outstandingat31December 96,759 9.71 237,623 8.51 _________ _________Exercisableat31December 22,066 6.67 17,452 6.16 _________ _________ Group ____________________________________________________________________

Weighted Weighted average average exercise exercise Options price(§) Options price(§) ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

GroupShareOptionPlansOutstandingat1January 545,200 7.95 597,539 10.37Reinstatedduringtheyear 54,736 7.42 19,050 7.26Effectofrightsissue 79,765 8.77 – –Exercisedduringtheyear (59,661) 6.91 (71,389) 7.11 ______________ ______________

Outstandingat31December 620,040 8.70 545,200 7.95 _________ _________Exercisableat31December 225,102 7.78 221,550 7.11 _________ _________Theoptionsoutstandingatreportingdatehadacontractuallifeofbetweenoneandfiveyears.

Theweightedaveragesharepriceandexercisepricearedenominatedinpoundssterlinganddisclosedineuroequivalentusingtheexchangeratesprevailingatreportingdate.

Fairvalueofshareoptionschemes

Fairvaluesofshareoptionsawardedunderall-employeeshareoptionplansin2009,measuredatthedateofgrantoftheoption,arecalculatedusingaBlack-Scholesmodel.

Theexpectedlifeofoptionsdependsonthebehaviourofoptionholders,whichisincorporatedintotheoptionmodelconsistentwithhistoricobservabledata.Thefairvaluescalculatedareinherentlysubjectiveanduncertainduetotheassumptionsmadeandthelimitationsofthemodelused.Thesignificantweightedaverageassumptionsusedtoestimatethefairvalueoftheoptionsgrantedin2009wereasfollows:

1yearsavings- 3yearsavings- 5yearsavings- relatedshare relatedshare relatedshare optionschemes optionschemes optionschemes _________________ _________________ _________________

Risk-freeinterestrate(%) 0.70 2.10 2.40Expectedvolatility(%) 50.00 35.00 30.00Expectedlife(years) 1 3 5

Therisk-freeinterestratewasdeterminedfromtheUKgiltszero-couponyieldcurve.ExpectedvolatilityisestimatedbyconsideringbothhistoricaveragesharepricevolatilityandimpliedvolatilityfortradedoptionsoverHSBCsharesofsimilarmaturitytothoseoftheemployeeoptions.Expectedlifeisnotasingleinputparameterbutafunctionofvariousbehaviouralassumptions.Expecteddividendyieldwasdeterminedtobe4.5percentperannum,inlinewithconsensusanalystoptions.

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14 Netimpairment

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Write-downsInvestments–available-for-saleequityinstruments (197) – – – ______________ ______________ ______________ ______________

Loansandadvancestocustomers–specificallowances (7,384) (3,742) (7,384) (3,742)–collectiveallowances – (152) – (152)–baddebtswrittenoff (1,380) (2,504) (1,380) (2,504) ______________ ______________ ______________ ______________

(8,764) (6,398) (8,764) (6,398) ______________ ______________ ______________ ______________

Reversalsofwrite-downsLoansandadvancestocustomers–specificallowances 2,885 4,188 2,885 4,188–collectiveallowances 1,331 – 1,331 ––baddebtsrecovered 316 303 316 303 ______________ ______________ ______________ ______________

4,532 4,491 4,532 4,491 ______________ ______________ ______________ ______________

Netimpairment (4,429) (1,907) (4,232) (1,907) _________ _________ _________ _________15 Profitbeforetax

2009 2008 ______________ ______________

§000 §000Group/BankProfitbeforetaxisstatedaftercharging:

Directors’emoluments–fees 119 128–otheremoluments 404 772 ______________ ______________

523 900 _________ _________Profitbeforetaxforthegroupisalsostatedafterchargingauditors’fees§166,000,otherassuranceservices§8,000,taxadvisoryservices§10,000andothernon-auditservices§3,000.


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16 Taxexpense

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Thechargeforincometax,whichisbasedonthe taxableprofitfortheyearatarateof35%,comprises:–current 23,200 28,589 20,768 26,449–deferred 2,129 4,383 1,493 (743) ______________ ______________ ______________ ______________

25,329 32,972 22,261 25,706 _________ _________ _________ _________Thetaxonprofitonordinaryactivitiesandtheresultofaccountingprofitmultipliedbytheapplicabletaxratearereconciledasfollows: Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Profitonordinaryactivitiesbeforetax 71,196 96,087 66,916 75,089 _________ _________ _________ _________Taxattheapplicablerateof35% 24,919 33,630 23,420 26,281Taxeffectofnon-taxableincome (19) (80) – (58)Taxeffectofprofitstaxedatdifferentrates – (824) (1,750) (824)Taxeffectofnon-deductibleexpenses 157 174 140 171Taxeffectofdepreciationchargesnotdeductiblebywayofcapitalallowances 347 347 347 346Taxeffectsofpropertysalestaxconsequences (55) – 65 –Taxeffectoftaxabletemporarydifferencesnotpreviouslyrecognised 20 (234) 78 (169)Taxeffectofadditionaldeductions (40) (41) (39) (41) ______________ ______________ ______________ ______________

Taxonprofitonordinaryactivities 25,329 32,972 22,261 25,706 _________ _________ _________ _________17 Earningspershare

Thecalculationofearningspershareofthegroupandthebankisbasedontheprofitattributabletoshareholdersofthebankasshownintheprofitorloss,dividedbythenumberofsharesinissueasat31December2009.

18 BalanceswithCentralBankofMalta,TreasuryBillsandcash

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000BalanceswithCentralBankofMalta 83,029 88,420 83,029 88,420MaltaGovernmentTreasuryBills 64,633 14,895 64,633 14,895Cash 25,009 27,367 25,008 27,366 ______________ ______________ ______________ ______________

172,671 130,682 172,670 130,681 _________ _________ _________ _________BalanceswithCentralBankofMaltaincludeareservedepositrequirementintermsofRegulation(EC)No.1745/2003oftheEuropeanCentralBank.Theaveragereservedepositrequirementasatyearendwas§78,392,000inrespectofthegroupandbank(2008:§82,966,000).

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19 Financialinstrumentsheldfortrading

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000FinancialassetsheldfortradingEquityandothernon-fixedincomeinstruments – 391 – 391Derivativefinancialinstruments 111,746 11,432 11,964 11,666 ______________ ______________ ______________ ______________

11,746 11,823 11,964 12,057 _________ _________ _________ _________Derivativefinancialinstrumentsheldwith:–Groupcompanies 3,612 3,986 3,612 3,986 _________ _________ _________ _________–subsidiarycompanies – – 218 234 _________ _________ _________ _________FinancialliabilitiesheldfortradingDerivativefinancialinstruments 11,044 11,381 11,046 12,375 _________ _________ _________ _________Derivativefinancialinstrumentsheldwith:–Groupcompanies 7,274 6,971 7,274 6,971 _________ _________ _________ _________–subsidiarycompanies – – 2 994 _________ _________ _________ _________a Equityandothernon-fixedincomeinstruments

Theequityandothernon-fixedincomeinstrumentsheldfortradingarelistedontheMaltaStockExchangeandareanalysedasfollows:

2009 2008 ______________ ______________

§000 §000Group/BankIssuedbyotherissuers–localothers – 391 ______________ ______________

– 391 _________ _________b Derivativefinancialinstruments

Fairvalue Fairvalue Fairvalue Fairvalue Notional assets liabilities Notional assets liabilities ______________ ______________ ______________ ______________ ______________ ______________

2009 2009 2009 2008 2008 2008 ______________ ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000 §000 Group

InterestratederivativesOverthecounterproducts–interestrateswapspurchased 167,662 7,140 – 82,584 3,641 ––interestrateswapswritten 167,662 – 7,098 82,584 – 3,589

CurrencyderivativesOverthecounterproducts–foreignexchangecontracts 82,759 2,112 1,452 95,510 3,013 3,014–foreignexchangeoptionspurchased 20,356 484 – 54,030 3,354 ––foreignexchangeoptionswritten 20,356 – 484 54,030 – 3,354

EquityderivativesOverthecounterproducts–equityindexoptionspurchased 25,205 2,010 – 34,804 1,424 ––equityindexoptionswritten 25,205 – 2,010 34,804 – 1,424 ______________ ______________ ______________ ______________

11,746 11,044 11,432 11,381 _________ _________ _________ _________


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19 Financialinstrumentsheldfortrading(continued)

b Derivativefinancialinstruments(continued)

Fairvalue Fairvalue Fairvalue Fairvalue Notional assets liabilities Notional assets liabilities ______________ ______________ ______________ ______________ ______________ ______________

2009 2009 2009 2008 2008 2008 ______________ ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000 §000 Bank

InterestratederivativesOverthecounterproducts–interestrateswapspurchased 167,662 7,140 – 82,584 3,641 ––interestrateswapswritten 167,662 – 7,098 82,584 – 3,589CurrencyderivativesOverthecounterproducts–foreignexchangecontracts 93,122 2,330 1,454 108,604 3,247 4,008–foreignexchangeoptionspurchased 20,356 484 – 54,030 3,354 ––foreignexchangeoptionswritten 20,356 – 484 54,030 – 3,354EquityderivativesOverthecounterproducts–equityindexoptionspurchased 25,205 2,010 – 34,804 1,424 ––equityindexoptionswritten 25,205 – 2,010 34,804 – 1,424 ______________ ______________ ______________ ______________ 11,666 11,964 11,046 11,666 12,375 _________ _________ _________ _________

20 Financialassetsdesignatedatfairvaluethroughprofitorloss

Group ________________________________

2009 2008 ______________ ______________

§000 §000Debt,TreasuryBillsandotherfixedincomeinstruments 101,097 125,173Equityandothernon-fixedincomeinstruments 147,456 154,541 ______________ ______________

248,553 279,714 _________ _________a Debt,TreasuryBillsandotherfixedincomeinstruments Group ________________________________

2009 2008 ______________ ______________

§000 §000 Issuedbypublicbodies –localgovernment 53,899 71,502 –foreigngovernment 13,934 17,640

Issuedbyotherissuers –localbanks 729 111

–foreignbanks 9,965 12,702–otherslocal 5,300 6,994–othersforeign 17,270 16,224 ______________ ______________

101,097 125,173 _________ _________Listingstatus–listedontheMaltaStockExchange 60,661 80,007–listedelsewhere 40,436 43,181–localunlisted – 1,985 ______________ ______________

101,097 125,173 _________ _________

�9

20 Financialassetsdesignatedatfairvaluethroughprofitorloss(continued)

a Debt,TreasuryBillsandotherfixedincomeinstruments(continued)

Group ________________________________

2009 2008 ______________ ______________

§000 §000 At1January 125,173 150,216

Exchangeadjustments 4 (11)Acquisitions 9,466 76,217Disposals/Redemptions (35,008) (103,356)Changesinfairvalue 1,462 2,107 ______________ ______________

At31December 101,097 125,173 _________ _________b Equityandothernon-fixedincomeinstruments Group ________________________________

2009 2008 ______________ ______________

§000 §000Issuedbyotherissuers–otherslocal 35,470 34,895–othersforeign 111,986 119,646 ______________ ______________

147,456 154,541 _________ _________ Listingstatus–listedontheMaltaStockExchange 14,528 13,110–listedelsewhere 1132,928 141,431 ______________ ______________

147,456 154,541 _________ _________

At1January 154,541 125,479Exchangeadjustments 565 490Acquisitions 25,886 108,351Disposals (54,491) (42,392)Changesinfairvalue 20,955 (37,387) ______________ ______________

At31December 147,456 154,541 _________ _________


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21 Financialinvestments

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Debtandotherfixedincomeinstruments–available-for-sale 468,172 401,909 371,014 385,805–held-to-maturity 8,894 25,240 8,894 25,240Equityandothernon-fixedincomeinstruments–available-for-sale 1,909 2,763 367 971 ______________ ______________ ______________ ______________

478,975 429,912 380,275 412,016 _________ _________ _________ _________

a Debtandotherfixedincomeinstrumentsavailable-for-sale

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Issuedbypublicbodies–localgovernment 256,063 186,769 200,614 186,292–foreigngovernment 30,115 10,441 2,334 5,122Issuedbyotherissuers–foreignbanks 146,673 165,751 141,026 164,808–localothers 488 – – ––foreignothers 34,833 38,948 27,040 29,583 ______________ ______________ ______________ ______________

468,172 401,909 371,014 385,805 _________ _________ _________ _________Amountsinclude:–issuedbyGroupcompanies – 1,005 – 1,005 _________ _________ _________ _________Listingstatus–listedontheMaltaStockExchange 256,551 186,769 200,614 186,292–listedelsewhere 209,246 210,333 168,025 194,706–foreignunlisted 2,375 4,807 2,375 4,807 ______________ ______________ ______________ ______________

468,172 401,909 371,014 385,805 _________ _________ _________ _________At1January 401,909 401,225 385,805 401,225Exchangeadjustments 2,738 (9,137) 2,735 (9,137)Amortisation (2,247) (1,226) (2,128) (1,270)Acquisitions 218,283 83,733 132,133 67,953Disposals/Redemptions (170,315) (64,112) ((163,721)) (64,112)Changesinfairvalue 17,804 (8,574) 16,190 (8,854) ______________ ______________ ______________ ______________

At31December 468,172 401,909 371,014 385,805 _________ _________ _________ _________Debt instrumentswith a carryingamountof§54,516,000 (2008:§105,449,000)havebeenpledgedagainst theprovisionofcreditlinesbytheCentralBankofMalta.At31December2009,nobalanceswereoutstandingagainstthesecreditlines.

b Debtandotherfixedincomeinstrumentsheld-to-maturity

2009 2008 ______________ ______________

§000 §000Group/BankIssuedbyotherissuers–foreignbanks – 8,512–localothers 8,894 8,881–foreignothers – 7,847 ______________ ______________

8,894 25,240 _________ _________

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21 Financialinvestments(continued)

b Debtandotherfixedincomeinstrumentsheld-to-maturity(continued)

2009 2008 ______________ ______________

§000 §000Group/BankListingstatus–listedontheMaltaStockExchange 8,894 10,279–listedelsewhere – 14,961 ______________ ______________

8,894 25,240 _________ _________At1January 25,240 47,030Exchangeadjustments 169 (3,086)Amortisation 13 4Redemptions (16,528) (18,708) ______________ ______________

At31December 8,894 25,240 _________ _________c Equityandothernon-fixedincomeinstrumentsavailable-for-sale

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Issuedbyotherissuers–localothers 1,896 2,251 354 459–foreignothers 13 512 13 512 ______________ ______________ ______________ ______________

1,909 2,763 367 971 _________ _________ _________ _________Listingstatus–listedelsewhere 1,542 1,792 – ––localunlisted 354 459 354 459–foreignunlisted 13 512 13 512 ______________ ______________ ______________ ______________

1,909 2,763 367 971 _________ _________ _________ _________At1January 2,763 8,270 971 3,753Exchangeadjustments (75) (46) (75) (46)Acquisitions – 540 – 539Disposals (551) (4,831) (551) (2,436)Write-down (197) – – –Changesinfairvalue (31) (1,170) 22 (839) ______________ ______________ ______________ ______________At31December 1,909 2,763 367 971 _________ _________ _________ _________


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22 Loansandadvancestobanks

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Repayableoncallandatshortnotice 45,130 8,590 45,055 8,553Termloansandadvances 702,527 1,063,716 702,527 1,063,716 ______________ ______________ ______________ ______________

747,657 1,072,306 747,582 1,072,269 _________ _________ _________ _________Amountsinclude:–duefromGroupcompanies 734,734 1,066,679 734,734 1,066,679 _________ _________ _________ _________

23 Loansandadvancestocustomers

2009 2008 ______________ ______________

§000 §000Group/BankRepayableoncallandatshortnotice 489,719 524,230Termloansandadvances 2,781,712 2,630,131 ______________ ______________

Grossloansandadvancestocustomers 3,271,431 3,154,361Allowancesforuncollectability (44,954) (42,121) ______________ ______________

Netloansandadvancestocustomers 3,226,477 3,112,240 ________ _________Allowancesforuncollectability–individuallyassessedallowances 32,529 28,365–collectivelyassessedallowances 12,425 13,756 ______________ ______________

44,954 42,121 ________ _________Thebalanceofindividuallyassessedallowancesatreportingdateincludes§15,932,000(2008:§14,792,000)inrespectofinterestinsuspensewhichhasbeennettedoffagainstinterestreceivable.

24 Sharesinsubsidiarycompanies

BankNameof Incorporated Nature Equitycompany in ofbusiness interest 2009 2008 ______________ ______________ ______________

% §000 §000

HSBCLifeAssurance Malta Lifeinsurance 99.99 28,578 28,578(Malta)Limited

HSBCGlobalAsset Malta Portfoliomanagement 99.99 5,940 5,940Management(Malta)Limited services

HSBCSecuritiesServices Malta FundAdministration 99.98 1,166 1,166(Malta)Limited services

HSBCStockbrokers(Malta)Limited Malta Stockbrokingservices 99.99 23 23 ______________ ______________

35,707 35,707 ______________ ______________

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25 Intangibleassets

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Software 1,912 2,014 1,741 1,797Presentvalueofin-forcelong-terminsurancebusiness 58,779 62,242 – – ______________ ______________ ______________ ______________

60,691 64,256 1,741 1,797 _________ _________ _________ _________a Software

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000CostAt1January 11,001 9,477 9,665 8,220Additions 1,046 1,524 985 1,445Disposals (5) – (5) – ______________ ______________ ______________ ______________

At31December 112,042 11,001 10,645 9,665 ______________ ______________ ______________ ______________

DepreciationAt1January 8,987 7,749 7,868 6,857Chargefortheyear 1,148 1,238 1,041 1,011Disposals (5) – (5) – ______________ ______________ ______________ ______________

At31December 10,130 8,987 8,904 7,868 ______________ ______________ ______________ ______________

Carryingamountat1January 2,014 1,728 1,797 1,363 _________ _________ _________ _________Carryingamountat31December 1,912 2,014 1,741 1,797 _________ _________ _________ _________

b Presentvalueofin-forcelong-terminsurancebusiness Group ________________________________

2009 2008 ______________ ______________

§000 §000At1January 62,242 34,382Additionfromcurrentyearnewbusiness 5,427 21,853Movementfromin-forcebusiness (8,890) 6,007 ______________ ______________

At31December 58,779 62,242 _________ _________ThefollowingarethekeyassumptionsusedinthecomputationofPVIF:

Group __________________________________________________

2009 2008 ________________________________ ______________

Riskfreerate Euroswapcurve 4.50%

Riskadjusteddiscountrate 8.00% 8.00%

Expensesinflation Frenchinflationswap 3.25% curvemodifiedforMalta

Lapserate Differentratesfor 11.00% differentproducts


��


26 Propertyandequipment

Landand Computer buildings equipment Others Total ______________ ______________ ______________ ______________

§000 §000 §000 §000GroupCost/revaluationAt1January2009 48,703 18,303 47,743 114,749Acquisitions 57 2,157 895 3,109Disposals (2,040) (1,859) (491) (4,390) ______________ ______________ ______________ ______________

At31December2009 46,720 18,601 48,147 113,468 ______________ ______________ ______________ ______________

DepreciationAt1January2009 2,349 13,654 28,062 44,065Chargefortheyear 558 1,513 4,251 6,322Disposals (18) (1,857) (441) (2,316) ______________ ______________ ______________ ______________

At31December2009 2,889 13,310 31,872 48,071 ______________ ______________ ______________ ______________

Carryingamountat1January2009 46,354 4,649 19,681 70,684 _________ _________ _________ _________Carryingamountat31December2009 43,831 5,291 16,275 65,397 _________ _________ _________ _________Cost/revaluationAt1January2008 52,378 17,824 46,849 117,051Acquisitions 2,135 1,825 2,072 6,032Disposals (5,810) (1,346) (1,178) (8,334) ______________ ______________ ______________ ______________

At31December2008 48,703 18,303 47,743 114,749 ______________ ______________ ______________ ______________

DepreciationAt1January2008 1,796 12,502 24,933 39,231Chargefortheyear 570 1,497 3,884 5,951Disposals (17) (345) (755) (1,117) ______________ ______________ ______________ ______________

At31December2008 2,349 13,654 28,062 44,065 ______________ ______________ ______________ ______________

Carryingamountat1January2008 50,582 5,322 21,916 77,820 _________ _________ _________ _________Carryingamountat31December2008 46,354 4,649 19,681 70,684 _________ _________ _________ _________ Group ________________________________

2009 2008 ______________ ______________

§000 §000Carryingamountoflandandbuildingsoccupiedforownactivities 43,831 46,354 _________ _________ Landand Computer buildings equipment Others Total ______________ ______________ ______________ ______________

§000 §000 §000 §000BankCost/revaluationAt1January2009 48,689 17,874 46,499 113,062Acquisitions 57 2,157 895 3,109Disposals (2,040) (1,856) (488) (4,384) ______________ ______________ ______________ ______________

At31December2009 46,706 18,175 46,906 111,787 ______________ ______________ ______________ ______________

��

26 Propertyandequipment(continued)

Landand Computer buildings equipment Others Total ______________ ______________ ______________ ______________

§000 §000 §000 §000BankDepreciationAt1January2009 2,133 13,282 26,916 42,331Chargefortheyear 558 1,492 4,251 6,301Disposals (18) (1,856) (441) (2,315) ______________ ______________ ______________ ______________

At31December2009 2,673 12,918 30,726 46,317 ______________ ______________ ______________ ______________

Carryingamountat1January2009 46,556 4,592 19,583 70,731 _________ _________ _________ _________Carryingamountat31December2009 44,033 5,257 16,180 65,470 _________ _________ _________ _________Cost/revaluationAt1January2008 52,364 17,403 45,524 115,291Acquisitions 2,135 1,812 2,062 6,009Disposals (5,810) (1,341) (1,087) (8,238) ______________ ______________ ______________ ______________

At31December2008 48,689 17,874 46,499 113,062 ______________ ______________ ______________ ______________

DepreciationAt1January2008 1,580 12,155 23,699 37,434Chargefortheyear 570 1,470 3,880 5,920Disposals (17) (343) (663) (1,023) ______________ ______________ ______________ ______________

At31December2008 2,133 13,282 26,916 42,331 ______________ ______________ ______________ ______________

Carryingamountat1January2008 50,784 5,248 21,825 77,857 _________ _________ _________ _________Carryingamountat31December2008 46,556 4,592 19,583 70,731 _________ _________ _________ _________ Bank ________________________________

2009 2008 ______________ ______________

§000 §000Carryingamountoflandandbuildingsoccupiedforownactivities 44,033 46,556 _________ _________Thecarryingamountoflandandbuildingsthatwouldhavebeenincludedinthefinancialstatementshadtheseassetsbeencarriedatcostlessdepreciationis§16,426,000(2008:§18,949,000)forthegroupandthebank.

27 Investmentproperty

FairValue Cost FairValue Cost ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000GroupFreeholdlandandbuildingsAt1January 12,14,050 8,553 12,885 8,553Additions 18 18 – –Fairvalueadjustments 1,520 – 1,165 – ______________ ______________ ______________ ______________

At31December 14,588 8,571 14,050 8,553 _________ _________ _________ _________


��


27 Investmentproperty(continued) FairValue Cost FairValue Cost ______________ ______________ ______________ ______________

2009 2009 2008 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000

BankFreeholdlandandbuildingsAt1January 11,647 6,473 10,482 6,473Additions 18 18 – –Fairvalueadjustments – – 1,165 – ______________ ______________ ______________ ______________

At31December 11,665 6,491 11,647 6,473 _________ _________ _________ _________Duringtheyearended31December2009,§671,000(2008:§689,000)wasrecognisedasrentalincomeintheincomestatementrelatingtoinvestmentpropertyforthegroupand§503,000(2008:§533,000)forthebank.TherentalincomeofthebankwasreceivedfromaGroupcompany.

28 Assetsheldforsale

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Assetsacquiredinsatisfactionofdebt 8,772 7,519 8,772 7,668Other 1,832 1,649 1,832 1,649 ______________ ______________ ______________ ______________

10,604 9,168 10,604 9,317 _________ _________ _________ _________Repossessedpropertiesaremadeavailableforsaleinanorderlyfashion,withtheproceedsusedtoreduceorrepaytheoutstandingindebtedness.Thegroupdoesnotgenerallyoccupyrepossessedpropertiesforitsbusinessuse.Inthemain,repossessedpropertyconsistedofimmovableproperty.

29 Otherassets

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Acceptancesandendorsements 2,212 4,233 2,212 4,233Reinsuranceassets 12,140 16,952 – –Other 6,360 4,639 5,719 4,192 ______________ ______________ ______________ ______________

20,712 25,824 7,931 8,425 _________ _________ _________ _________Amountsinclude:–duefromGroupcompanies 1,894 1,815 1,894 1,815 _________ _________ _________ _________

30 Prepaymentsandaccruedincome

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Accruedincome 32,562 46,215 28,828 43,579Prepayments 1,186 1,024 1,178 1,019 ______________ ______________ ______________ ______________

33,748 47,239 30,006 44,598 _________ _________ _________ _________Amountsinclude:–duefromGroupcompanies 531 11,271 482 11,239 _________ _________ _________ _________–duefromsubsidiarycompanies – – 285 288 _________ _________ _________ _________

��

31 Amountsowedtobanks

2009 2008 ______________ ______________

§000 §000Group/BankTermdeposits 157,817 440,405Repayableondemand 10,954 21,780 ______________ ______________

168,771 462,185 _________ _________Amountsinclude:–duetoGroupcompanies 163,904 342,399 _________ _________

32 Amountsowedtocustomers

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Termdeposits 1,995,524 2,286,470 2,016,423 2,295,696Repayableondemand 2,091,145 1,730,162 2,129,872 1,778,179 ______________ ______________ ______________ ______________

4,086,669 4,016,632 4,146,295 4,073,875 _________ _________ _________ _________Amountsinclude:–duetoGroupcompanies 899 971 899 971 _________ _________ _________ _________–duetosubsidiarycompanies – – 59,626 57,243 _________ _________ _________ _________

33 Deferredtax

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Deferredtaxliabilitiesand(assets)areattributabletothefollowing:–excessofcapitalallowancesoverdepreciation 852 936 842 928–allowancesforuncollectibility (14,066) (13,770) (13,997) (13,770)–propertysalestaxconsequences 7,023 6,953 6,672 6,664–fairvaluemovementsoninvestments (305) (6,030) (731) (6,148)–valueofin-forcelifeinsurancebusiness 20,573 21,785 – ––fairvaluemovementonpolicyholders’investments (2,698) (4,771) – ––other (1,581) (3,419) (1,552) (3,400) ______________ ______________ ______________ ______________

9,798 1,684 (8,766) (15,726) _________ _________ _________ _________ Group ____________________________________________________________________

At At 1January Recognised Recognised 31December 2009 inincome inequity 2009 ______________ ______________ ______________ ______________

§000 §000 §000 §000Movementintemporarydifferencesrelatingto:–excessofcapitalallowancesoverdepreciation 936 (84) – 852–allowancesforuncollectibility (13,770) (296) – (14,066)–propertysalestaxconsequences 6,953 2 6 7,023–fairvaluemovementsoninvestments (6,030) 154 5,781 (305)–valueofin-forcelifeinsurancebusiness 21,785 (1,212) – 20,573–fairvaluemovementonpolicyholders’investments (4,771) 1,929 – (2,698)–other (3,419) 1,636 198 (1,581) ______________ ______________ ______________ ______________

1,684 2,129 5,985 9,798 _________ _________ _________ _________


��


33 Deferredtax(continued)

Group ____________________________________________________________________


§000 §000 §000 §000Movementintemporarydifferencesrelatingto:–excessofcapitalallowancesoverdepreciation 995 (61) 2 936–allowancesforuncollectibility (15,833) 2,063 – (13,770)–propertysalestaxconsequences 7,498 (558) 13 6,953–fairvaluemovementsoninvestments (2,158) 50 (3,922) (6,030)–valueofin-forcelifeinsurancebusiness 12,034 9,751 – 21,785–fairvaluemovementonpolicyholders’investments 60 (4,781) (50) (4,771)–other (1,788) (2,081) 450 (3,419) ______________ ______________ ______________ ______________

808 4,383 (3,507) 1,684 _________ _________ _________ _________ Bank ____________________________________________________________________


§000 §000 §000 §000Movementintemporarydifferencesrelatingto:–excessofcapitalallowancesoverdepreciation 928 (86) – 842–allowancesforuncollectibility (13,770) (227) – (13,997)–propertysalestaxconsequences 6,664 2 6 6,672–fairvaluemovementsoninvestments (6,148) 154 5,263 (731)–other (3,400) 1,650 198 (1,552) ______________ ______________ ______________ ______________

(15,726) 1,493 5,467 (8,766) _________ _________ _________ _________ Bank ____________________________________________________________________


§000 §000 §000 §000Movementintemporarydifferencesrelatingto:–excessofcapitalallowancesoverdepreciation 997 (69) – 928–allowancesforuncollectibility (15,833) 2,063 – (13,770)–propertysalestaxconsequences 7,209 (558) 13 6,664–fairvaluemovementsoninvestments (2,159) (106) (3,883) (6,148)–other (1,762) (2,073) 435 (3,400) ______________ ______________ ______________ ______________

(11,548) (743) (3,435) (15,726) _________ _________ _________ _________Thegroup’sdeferredtaxassetsandliabilitiesonthebalancesheethavenotbeenoff-settotheextentthatthereisnolegallyenforceablerightofset-offwiththetaxauthorities.

�9

34 Liabilitiestocustomersunderinvestmentcontracts

Group ______________________________

2009 2008 ______________ ______________

§000 §000At1January 15,122 18,947Premiumsreceived 141 1,385Accountsbalancespaidonsurrenderandotherterminationduringtheyear (710) (910)Changesinunitpricesandothermovements 2,300 (4,300) ______________ ______________

At31December 16,853 15,122 _________ _________35 Liabilitiesunderinsurancecontractsissued

Group ______________________________

Gross Gross ______________ ______________

2009 2008 ______________ ______________

§000 §000Lifeinsurance(non-linked)Provisionsforpolicyholders 260,187 250,467Outstandingclaims 2,470 1,121 ______________ ______________

Totalnon-linked 262,657 251,588 _________ _________Lifeinsurance(linked)Provisionsforpolicyholders 88,572 59,614Outstandingclaims 284 48 ______________ ______________

Totallinked 88,856 59,662 _________ _________Totalliabilitiesunderinsurancecontracts 351,513 311,250 _________ _________ Group _____________________________________________________________________

Non-linked Linked business business Allbusiness Allbusiness __________________ __________________ __________________ __________________

Provisions Provisions forpolicy- forpolicy- Outstanding holders holders claims Total __________________ __________________ __________________ __________________

2009 2009 2009 2009 __________________ __________________ __________________ __________________

§000 §000 §000 §000At1January 250,467 259,614 1,169 2311,250Claimsinrespectofnewbusiness – – 3,410 3,410Movementfortheyear 9,720 28,958 ((1,227) 37,451Previousyearclaimspaid – – ((598) (598) __________________ __________________ __________________ __________________

At31December 260,187 88,572 2,754 351,513 ______________ ______________ ______________ ______________


�0


35 Liabilitiesunderinsurancecontractsissued(continued)

Group _____________________________________________________________________

Non-linked Linked business business Allbusiness Allbusiness __________________ __________________ __________________ __________________

Provisions Provisions forpolicy- forpolicy- Outstanding holders holders claims Total __________________ __________________ __________________ __________________

2008 2008 2008 2008 __________________ __________________ __________________ __________________

§000 §000 §000 §000At1January 217,237 272,034 1,672 2290,943Claimsinrespectofnewbusiness – – 1,995 1,995Movementfortheyear 33,230 (12,420) ((1,393) 19,417Previousyearclaimspaid – – ((1,105) (1,105) __________________ __________________ __________________ __________________

At31December 250,467 59,614 1,169 311,250 ______________ ______________ ______________ ______________36 Otherliabilities

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Billspayable 10,605 12,153 10,605 12,153Cashcollateralforcommitments 124 1,021 124 1,021Obligationsunderfinanceleases 268 404 268 404Acceptancesandendorsements 2,212 4,233 2,212 4,233Other 22,270 18,923 19,012 16,072 ______________ ______________ ______________ ______________

35,479 36,734 32,221 33,883 _________ _________ _________ _________37 Accrualsanddeferredincome

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Accruedinterest 17,134 33,848 17,471 34,404Other 16,288 20,082 15,597 19,435 ______________ ______________ ______________ ______________

33,422 53,930 33,068 53,839 _________ _________ _________ _________Amountsinclude:–duetoGroupcompanies 2,552 1,762 2,417 1,681 _________ _________ _________ _________–duetosubsidiarycompanies – – 337 556 _________ _________ _________ _________

38 Provisionsforliabilitiesandothercharges

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000At1January 312 414 277 380Provisionsmadeduringtheyear 265 91 237 91Provisionsreversedduringtheyear – (193) – (194) ______________ ______________ ______________ ______________

At31December 577 312 514 277 _________ _________ _________ _________

��

39 Subordinatedliabilities

2009 2008 ______________ ______________

§000 §000Group/Bank4.60%subordinatedunsecuredloanstock2017 58,022 57,9925.90%subordinatedunsecuredloanstock2018 29,805 29,785 ______________ ______________

87,827 87,777 _________ _________40 Sharecapital

2009 2008 ______________ ______________

§000 §000Authorised470,000,000Ordinarysharesof30ceach 141,000 141,000 _________ _________Issuedandfullypaidup291,840,000Ordinarysharesof30ceach 87,552 87,552 _________ _________

41 Reserves

Revaluationreserve

Therevaluationreservecomprisesthesurplusarisingontherevaluationofthegroup’sfreeholdandlongleaseholdpropertiesandthecumulativenetchangeinfairvaluesofavailable-for-salefinancialassetsheldbythegroup,netofdeferredtaxation.Therevaluationreserveisnotavailablefordistribution.

42 Contingentliabilities

Group Bank Contractamount Contractamount ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Guaranteesandassetspledgedascollateralsecurity–guarantees 95,820 97,505 95,843 97,528–standbylettersofcredit 23,629 32,420 23,629 32,420 ______________ ______________ ______________ ______________

119,449 129,925 119,472 129,948 _________ _________ _________ _________Amountsinclude:–infavourofGroupcompanies 6,934 9,566 6,934 9,566 _________ _________ _________ _________–infavourofsubsidiarycompanies – – 23 23 _________ _________ _________ _________


��


43 Commitments

Contractamount ________________________________

2009 2008 ______________ ______________

§000 §000Group/BankDocumentarycredits 13,250 16,411Undrawnformalstandbyfacilities,creditfacilitiesandothercommitmentstolend 910,648 1,094,159Uncalledsharecapitalinothercompanies 2 2 ______________ ______________

923,900 1,110,572 _________ _________Amountsinclude:–infavourofGroupcompanies – 70 _________ _________

44 Capitalandleasecommitments

a Capitalcommitments

Capitalcommitmentsaremadeupof: 2009 2008 ______________ ______________

§000 §000Group/BankIntangibleassets 133 379Propertyandequipment 497 393 ______________ ______________

630 772 _________ _________b Operatingleases

Totalfutureminimumleasepaymentsundernon-cancellableoperatingleasesnotprovidedfor:

2009 2008 ______________ ______________

§000 §000Group/BankLessthanoneyear 2,286 2,163Betweenoneyearandfiveyears 5,219 5,347Morethanfiveyears 4,304 4,967 ______________ ______________

11,809 12,477 _________ _________c Financeleases

Financeleasepayments,bothprincipalandfinancecharge,arepayableasfollows:

2009 2008 ______________ ______________

§000 §000Group/BankLessthanoneyear 190 289Betweenoneyearandfiveyears 105 153Morethanfiveyears – – ______________ ______________

Totalminimumleasepayments 295 442Financecharges (27) (38) ______________ ______________

Presentvalueofminimumleasepayments 268 404 _________ _________

��

45 Dividends

Bank ____________________________________________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

%pershare %pershare §000 §000Grossofincometax%per30cshare–prioryear’sfinal 32 49 28,016 43,192–interim 26 40 22,472 34,729 ______________ ______________ ______________ ______________

58 89 50,488 77,921 _________ _________ _________ _________ Eurocent Eurocent pershare pershare §000 §000Netofincometaxeurocentper30cshare–prioryear’sfinal 6.24 9.62 18,210 28,075–interim 5.01 7.74 14,607 22,574 ______________ ______________ ______________ ______________

11.25 17.36 32,817 50,649 _________ _________ _________ _________TheDirectorshaveproposedafinalgrossordinarydividendof8.0eurocent(2008:9.6eurocent)pershare.Thefinaldividendwillbepayabletoshareholdersonthebank’sregisterasat4March2010.

46 Cashandcashequivalents

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Balancesofcashandcashequivalentsareanalysedbelow:Cash 25,009 27,367 25,008 27,366BalanceswithCentralBankofMalta(excludingreservedeposit) 4,638 5,454 4,638 5,454Financialassetsdesignatedatfairvaluethroughprofitorloss 4,356 4,985 – –Loansandadvancestobanks 683,010 713,481 682,999 713,444Amountsowedtobanks (168,198) (446,692) (168,198) (446,692) ______________ ______________ ______________ ______________

Perstatementsofcashflows 548,815 304,595 544,447 299,572 ______________ ______________ ______________ ______________

Adjustmenttoreflectbalanceswithcontractualmaturityofmorethanthreemonths 372,904 632,956 128,643 358,227 ______________ ______________ ______________ ______________

Perstatementsoffinancialposition 921,719 937,551 673,090 657,799 _________ _________ _________ _________


��


46 Cashandcashequivalents(continued)

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Analysedasfollows:CashandbalanceswithCentralBankofMalta(excludingreservedeposit) 29,647 32,821 29,646 32,820MaltaGovernmentTreasuryBills 64,633 14,895 64,633 14,895Financialassetsdesignatedatfairvaluethroughprofitorloss 248,553 279,714 – –Loansandadvancestobanks 747,657 1,072,306 747,582 1,072,269Amountsowedtobanks (168,771) (462,185) (168,771) (462,185) ______________ ______________ ______________ ______________

921,719 937,551 673,090 657,799 _________ _________ _________ _________47 Segmentalinformation

a Classofbusiness Personal Commercial GlobalBanking Group FinancialServices Banking andMarkets Total _______________________________ _______________________________ _______________________________ _______________________________

2009 2008 2009 2008 2009 2008 2009 2008 _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ §000 §000 §000 §000 §000 §000 §000 §000

Group

Netinterestincome–External 30,821 7,283 60,493 62,887 13,656 52,874 104,970 123,044–Inter-segment 24,041 58,094 (11,255) (9,993) (12,786) (48,101) – – _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ 54,862 65,377 49,238 52,894 870 4,773 104,970 123,044

Netnon-interestincome–External 26,554 35,230 16,496 16,570 11,639 13,457 54,689 65,257–Inter-segment 1,480 2,995 – – (1,480) (2,995) – – _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ 28,034 38,225 16,496 16,570 10,159 10,462 54,689 65,257ExternalOperatingexpenses–Employeecompensationandbenefit (32,475) (37,857) (14,254) (15,088) (2,523) (2,532) (49,252) (55,477)–Generalandadministrativeexpenses (19,303) (19,238) (5,738) (6,083) (2,006) (2,422) (27,047) (27,743)–Depreciation (4,463) (4,307) (1,843) (1,625) (16) (19) (6,322) (5,951)–Amortisation (755) (910) (330) (298) (63) (30) (1,148) (1,238) _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ (56,996) (62,312) (22,165) (23,094) (4,608) (5,003) (83,769) (90,409)

ExternalNetimpairment (2,578) (1,017) (1,654) (890) (197) – (4,429) (1,907) ________ ________ ________ ________ ________ ________ ________ _______ExternalNetprovisionsforliabilitiesandothercharges (20) 146 (217) (43) (28) (1) (265) 102 ________ ________ ________ ________ ________ ________ ________ _______Profitbeforetax 23,302 40,419 41,698 45,437 6,196 10,231 71,196 96,087 ________ ________ ________ ________ ________ ________ ________ _______

��

47 Segmentalinformation(continued)

a Classofbusiness(continued)

Personal Commercial GlobalBanking Group FinancialServices Banking andMarkets Total _______________________________ _______________________________ _______________________________ _______________________________

2009 2008 2009 2008 2009 2008 2009 2008 _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ §000 §000 §000 §000 §000 §000 §000 §000

Assets

Segmenttotalassets1,2,129,646 1,974,137 1,682,729 1,667,774 1,305,425 1,654,177 5,117,800 5,296,088 ________ ________ ________ ________ ________ ________ ________ _______Averagetotalassets 2,051,891 1,882,670 1,675,252 1,606,429 1,479,801 1,606,489 5,206,944 5,095,588 ________ ________ ________ ________ ________ ________ ________ _______TotalEquity 113,280 114,874 159,636 153,929 33,671 13,674 306,587 282,477 ________ ________ ________ ________ ________ ________ ________ _______

b Geographicalsegments

The group’s activities are carried out within Malta. There are no identifiable geographical segments or othermaterialconcentrations.

48 Relatedpartytransactions

During the courseofbankingoperations, thegroupconductedbusiness transactionswith entitiesownedby theultimateparentanditssubsidiariesonanarm’slengthbasis.

ExecutiveDirectorsparticipateintheHSBCGroupshareoptionplans(seenote13).

a Transactions,arrangementsandagreementsinvolvingDirectorsandothers

Particulars of transactions, arrangements and agreements entered into with Directors, connected persons andcompaniescontrolledbythemandwithkeymanagementpersonnelofHSBCBankMaltap.l.c.:

Group Bank ________________________________ ________________________________

Balanceat Balanceat Balanceat Balanceat endofyear endofyear endofyear endofyear ______________ ______________ ______________ ______________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Directors,connectedpersonsandcompaniescontrolledbythemLoans 119,777 109,228 119,777 109,228Creditcardtransactions 27 21 27 21Guarantees 5,968 1,764 5,968 1,764Commitmentstolend 55,297 43,430 55,297 43,430

Seniorexecutivemanagement Loans 2,053 1,816 1,942 1,692 Creditcardtransactions 54 50 49 50

The above banking facilities are part of long-term commercial relationships and were made in the ordinarycourseofbusinessandonsubstantiallythesameterms,includinginterestratesandsecurity,asforcomparabletransactionswithpersonsofasimilarstandingor,whereapplicable,withotheremployees.Thetransactionsdidnotinvolvemorethanthenormalriskofrepaymentorpresentotherunfavourablefeatures.


��


48 Relatedpartytransactions(continued)

b CompensationtoDirectorsandkeymanagementpersonnel

Group Bank ________________________________ ________________________________

2009 2008 2009 2008 ______________ ______________ ______________ ______________

§000 §000 §000 §000Short-termemployeebenefits 3,454 3,316 3,058 3,006Post-employmentbenefits 238 208 238 208Otherlong-termbenefits 17 3 17 3Terminationbenefits 348 204 348 204Share-basedpayments 134 206 130 193 ______________ ______________ ______________ ______________

4,191 3,937 3,791 3,614 _________ _________ _________ _________ DetailsofDirectors’feesandemolumentsarestatedinnote15.

c Transactionswithotherrelatedparties

InformationrelatingbothtotransactionswithHSBCHoldingsplcanditssubsidiariesaswellaswithsubsidiarycompanies of HSBC Bank Malta p.l.c. are stated in the ‘Notes on the Accounts’ where the following aredisclosed.

Note6 –interestreceivableandsimilarincomeNote7 –interestpayableNote8 –netfeeandcommissionincomeNote9 –dividendincomeNote13 –employeecompensationandbenefitsNote19 –financialinstrumentsheldfortradingNote21 –financialinvestmentsNote22 –loansandadvancestobanksNote24 –sharesinsubsidiarycompaniesNote27 –investmentpropertyNote29 –otherassetsNote30 –prepaymentsandaccruedincomeNote31 –amountsowedtobanksNote32 –amountsowedtocustomersNote37 –accrualsanddeferredincomeNote42 –contingentliabilitiesNote43 –commitments

IncludedinInterestreceivableandsimilarincome(note6)andinInterestpayable(note7),thegrouprecognisedinterest amounting to §6,887,000 and §1,022,000 respectively, on advances and deposits placed with anintermediateparent.

Furthermore, expenditure relating to transactions with HSBC Holdings plc and its subsidiaries amounting to§6,242,000(2008:§4,565,000)forthegroupand§5,570,000(2008:§4,324,000)forthebankareincludedwithingeneralandadministrativeexpenses.

��

49 Trustandcustodyactivities

Thegroupprovides trust andcustody services to individuals, trusts, retirementbenefit plans andother institutions,wherebyitholdsandmanagesassetsorinvestsfundsreceivedinvariousfinancialinstrumentsatthedirectionofthecustomer.Thegroupreceivesfeeincomeforprovidingtheseservices.Trustassetsandassetsheldincustodyarenotassetsofthegroupandarenotrecognisedinthestatementsoffinancialposition.Thegroupisnotexposedtoanycreditriskrelatingtosuchplacements,asitdoesnotguaranteetheseinvestments.

At 31 December 2009, the total assets held by the group on behalf of customers were §2,718,297,000 (2008:§2,587,745,000).

50 Registeredofficeandultimateparentcompany

The addresses of the registered and principal offices of the bank and its subsidiary companies included in theconsolidatedfinancialstatementscanbefoundinaseparatestatementwhichisfiledattheRegistrarofCompaniesinaccordancewiththeprovisionsoftheFourthScheduletotheCompaniesAct,1995.

TheultimateparentcompanyofHSBCBankMaltap.l.c.isHSBCHoldingsplc,whichisincorporatedandregisteredinEngland.The registered address is 8CanadaSquare,LondonE145HQ,UnitedKingdom.Copiesof theHSBCHoldingsplcAnnualReview2009andAnnualReportandAccounts2009maybeobtainedfromitsregisteredofficefrom30March2010orviewedonwww.hsbc.com.

51 Investorcompensationscheme

InaccordancewiththeprovisionsoftheInvestorCompensationSchemeRegulations,2003issuedundertheInvestmentServicesAct,1994,licenceholdersarerequiredtotransferavariablecontributiontoanInvestorCompensationSchemeReserveandplacetheequivalentamountwithabank,pledgedinfavouroftheScheme.AlternativelylicenceholderscanelecttopaytheamountofvariablecontributiondirectlytotheScheme.

HSBCBankMaltap.l.c.andHSBCStockbrokers(Malta)LimitedhaveelectedtopaytheamountofthevariablecontributiondirectlytotheScheme.

52Accountingestimatesandjudgements

The Directors considered the development, selection and disclosure of the group’s critical accounting policies andestimatesandtheapplicationofthesepoliciesandestimates.Estimatesandjudgementsarecontinuallyevaluatedandarebasedonhistorical andother factors, includingexpectationsof futureevents that arebelieved tobe reasonableunderthecircumstances.

Criticalaccountingjudgementinapplyingaccountingpolicies

i Impairmentlossesonloansandadvances

Thegroupreviewsitsloanportfoliotoassessimpairmentonanongoingbasisasrelevantgenericdataisobservedconcerningrisksassociatedwithgroupsofloanswithsimilarriskcharacteristics(seenote3(g)(i)).Asaresult,thegroupmakesjudgementsastowhetherthereisanyobservabledataindicatingthatthereisameasurabledecreaseintheestimatedfuturecashflowsfromaportfolioofloans,beforethedecreaseisactuallyidentifiedwithanindividualloaninthatportfolio.Theevidencemayincludeobservabledataindicatingthattherehasbeenanadversechangeintherelativeeconomicsituationofanassetgrouporinthecreditstatusofborrowersinagroup.Managementusesestimatesbasedonhistoricallossexperienceforassetswithcreditriskcharacteristicsandobjectiveevidenceof impairment similar to those in the portfolio when scheduling its future cash flows. The methodology andassumptionsusedforestimatingboththeamountandtimingoffuturecashflowsarereviewedregularlytoreduceanydifferencesbetweenlossestimatesandactuallossexperience.


��


52 Accountingestimatesandjudgements(continued)

Criticalaccountingjudgementinapplyingaccountingpolicies(continued)

ii Policyholderclaimsandbenefits

The determination of the liabilities under long-term insurance contracts is dependent on estimates made by thegroup.Estimatesaremadeastotheexpectednumberofdeathsforeachoftheyearsinwhichthegroupisexposedtorisk.Thegroupbasestheseestimatesonstandardindustryandnationalmortalitytablesthatreflectrecenthistoricalmortalityexperience,adjustedwhereappropriatetoreflectthegroup’sownexperience.Theestimatednumberofdeathsdeterminesthevalueofthebenefitpaymentsandthevalueofthevaluationpremiums.Themainsourceofuncertainty is thatepidemicssuchasAIDS,SARS,pandemicfluandwide-ranging lifestylechanges,suchas ineating,smokingandexercisehabits,couldresultinfuturemortalitybeingsignificantlyworsethaninthepastfortheagegroupsinwhichthegrouphassignificantexposuretomortalityrisk.

Estimates are also made as to future investment income arising from the assets backing long-term insurancecontracts.Theseestimatesarebasedoncurrentmarketreturnsaswellasexpectationsaboutfutureeconomicandfinancialdevelopments.

For long-term insurancecontractswith fixedandguaranteed termsandwithdiscretionaryparticipation features,estimates of future deaths, voluntary terminations, investment returns and administrative expenses form theassumptionsused forcalculating the liabilitiesduring the lifeof thecontract.Amargin for riskanduncertaintyis added to these assumptions. New estimates are made each subsequent year to reflect the current long-termoutlook.

iii Fairvalueofderivatives

The fair value of financial instruments that are not quoted in active markets are determined by using valuationtechniques.Wherevaluationtechniques(forexamplemodels)areusedtodeterminefairvalues,theyarevalidatedandperiodicallyreviewedbyqualifiedpersonnelindependentoftheareathatcreatedthem.Allmodelsarecertifiedbeforetheyareused,andmodelsarecalibratedtoensurethatoutputsreflectactualdataandcomparativemarketprices.Totheextentpractical,modelsuseonlyobservabledata,howeverareassuchascreditrisk(bothownandcounterparty),volatilitiesandcorrelations requiremanagement tomakeestimates.Changes inassumptionaboutthesefactorscouldaffectreportedfairvalueoffinancialinstruments.

iv Impairmentofavailable-for-saleequityinstruments

Thegroupdeterminesthatavailable-for-saleequityinvestmentsareimpairedwhentherehasbeenasignificantorprolongeddeclineinthefairvaluebelowitscost.Thisdeterminationofwhatissignificantorprolongedrequiresjudgement.Inmakingthisjudgement,thegroupevaluatesamongotherfactors,thenormalvolatilityinshareprice.Inaddition,impairmentmaybeappropriatewhenthereisevidenceofdeteriorationinthefinancialhealthoftheinvestee,industryandsectorperformance,changesintechnology,andoperationalandfinancialcashflows.

v Held-to-maturityinvestments

ThegroupfollowstheapplicationguidanceinIAS39onclassifyingnon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturityasheld-to-maturity.Thisclassificationrequiressignificantjudgement.Inmakingthisjudgement,thegroupevaluatesitsintentionandabilitytoholdsuchinvestmentstomaturity.Ifthegroup fails to keep these investments to maturity other than for specific circumstances, for example, selling aninsignificantamountclose tomaturity, itwillbe required to reclassify theentireclassasavailable-for-sale.Theinvestmentswouldthereforebemeasuredatfairvaluenotamortisedcost.

�9


Report of the Independent Auditors to the Members of HSBC Bank Malta p.l.c.

Report on the financial statements

WehaveauditedthefinancialstatementsofHSBCBankMaltap.l.c.(the‘bank’)andofthegroupofwhichthebankistheparent,assetoutonpages26to88,whichcomprisethestatementsoffinancialpositionasat31December2009andthestatementsofcomprehensiveincome,changesinequityandcashflowsfortheyearthenended,andasummaryofsignificantaccountingpoliciesandotherexplanatorynotes.

Directors’ responsibility for the financial statements

AsexplainedmorefullyintheDirectors’ResponsibilitiesStatementsetoutonpage25,thedirectorsareresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordancewithInternationalFinancialReportingStandardsasadoptedbytheEU,theCompaniesAct,1995(Chapter386,LawsofMalta),andtheBankingAct,1994(Chapter371,LawsofMalta),and,asregardsthefinancialstatementsofthegroup,Article4oftheIASRegulation.This responsibility includes: designing, implementing and maintaining internal control relevant to the preparationandfairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror;selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. This report, includingtheopinion,hasbeenpreparedforandonlyforthebank’smembersasabodyinaccordancewithArticle179oftheCompaniesAct,1995(Chapter386,LawsofMalta)andArticle31oftheBankingAct,1994(Chapter371,LawsofMalta),andmaynotbeappropriateforanyotherpurpose.

Inaddition,wereadtheotherinformationcontainedintheAnnualReport2009andconsiderwhetheritisconsistentwiththeauditedfinancialstatements.Weconsidertheimplicationsforourreportifwebecomeawareofanyapparentmaterialmisstatementsoffactormaterialinconsistencieswiththefinancialstatements.

WeconductedourauditinaccordancewithInternationalStandardsonAuditing.Thosestandardsrequirethatwecomplywithrelevantethicalrequirementsandplanandperformtheaudittoobtainreasonableassurancewhetherthefinancialstatementsarefreefrommaterialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on our judgement, including the assessment of the risks ofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,weconsiderinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

Opinion on financial statements

Inouropinion,thefinancialstatements:

– givea trueand fairviewof thegroup’sand thebank’s financialpositionasat31December2009, andof theirfinancial performance and their cash flows for the year then ended in accordance with International FinancialReportingStandardsasadoptedbytheEU;and

– have been properly prepared in accordance with the Companies Act, 1995 (Chapter 386, Laws of Malta), theBankingAct,1994(Chapter371,LawsofMalta),and,asregardsthefinancialstatementsofthegroup,Article4oftheIASRegulation.

90

Report on other legal and regulatory requirements

Matters on which we are required to report by the Banking Act, �99� (Chapter ��, Laws of Malta)

Inouropinion:

– wehaveobtainedalltheinformationandexplanationswhich,tothebestofourknowledgeandbelief,werenecessaryforthepurposeofouraudit;

– properbooksofaccounthavebeenkeptbythebanksofarasappearsfromourexaminationthereof;

– thebank’sfinancialstatementsareinagreementwiththebooksofaccount;and

– tothebestofourknowledgeandbeliefand,onthebasisoftheexplanationsgiventous,thefinancialstatementsgivetheinformationrequiredbylawinforceinthemannersorequired.

Matters on which we are required to report by exception by the Companies Act, �99� (Chapter ��, Laws of Malta) (’the Act‘), other than those reported upon above

WehavenothingtoreportinrespectofthefollowingmatterswheretheActrequiresustoreporttoyouif,inouropinion:

– theinformationgivenintheDirectors’Reportforthefinancialyearforwhichthefinancialstatementsarepreparedisnotconsistentwiththefinancialstatements;or

– certaindisclosuresofDirectors’remunerationspecifiedbytheActarenotmade.

Report required by Listing Rule �.�� issued by the Listing Authority in Malta on the Directors’ Statement of Compliance with the Code of Principles of Good Corporate Governance (the ‘Principles’) outlined in Appendix �.� to Chapter � (Continuing Obligations) of the Listing Rules (the ‘Appendix‘)

ListingRule8.36requiresanIssuerwhosesecuritiesareadmittedtotradingonaRegulatedMarketoperatinginMaltatoprepareacorporategovernancestatement.Inaddition,asanIssuerregisteredinMalta,ListingRule8.36brequiresthat the bank endeavours to adopt the Principles and to prepare a report explaining how it has complied with theprovisionsoftheAppendix.

Ourresponsibilityasindependentauditorsofthebank,islaiddownbyListingRule8.38,whichrequiresustoissueareportontheDirectors’StatementofCompliancewiththePrinciples,whichissetoutinpages20to23.

WereviewtheDirectors’StatementofComplianceandreportastowhetherthisstatementprovidesthedisclosuresrequiredbyListingRules8.37and8.38asobtainingpriortothecomingintoeffectofCircular01/2010issuedtoallCompanySecretariesandStockbrokingFirms,bytheListingAuthority(MaltaFinancialServicesAuthority),whichcircularcame intoeffecton11January2010.Wearenot required to,andwedonot,considerwhether theBoard’sstatements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’scorporate governance procedures or its risks and control procedures, nor on the ability of the group to continue inoperationalexistence.

Inouropinion,theDirectors’StatementofCompliancesetoutinpages20to23providesthedisclosuresrequiredbytheaforementionedListingRules8.37and8.38asobtainingpriortothecomingintoeffectofCircular01/2010issuedtoallCompanySecretariesandStockbrokingFirms,bytheListingAuthority(MaltaFinancialServicesAuthority),whichcircularcameintoeffecton11January2010.

NoelMizzi(Partner)forandonbehalfof

KPMGRegisteredAuditorsPorticoBuildingMarinaStreetPietàPTA9044Malta

22February2010

Report of the Independent Auditors to the Members of HSBC Bank Malta p.l.c. (continued)


9�


Group Income Statements

2009 2008 2007 2006 2005 ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000

Interestreceivableandsimilarincome 169,038 245,510 237,580 188,388 167,445Interestpayable (64,068) (122,466) (111,342) (78,996) (63,655) ______________ ______________ ______________ ______________ ______________

Netinterestincome 104,970 123,044 126,238 109,392 103,790

Netnon-interestincome 54,689 65,257 72,453 66,634 56,070Operatingexpenses (83,769) (90,409) (83,672) (80,007) (74,691)Netimpairment (4,429) (1,907) (42) 422 331Netprovisionsforliabilitiesandothercharges (265) 102 (340) (16) 2 ______________ ______________ ______________ ______________ ______________

Profitbeforetax 71,196 96,087 114,637 96,425 85,502Taxexpense (25,329) (32,972) (38,322) (33,944) (29,448) ______________ ______________ ______________ ______________ ______________Profitfortheyear 45,867 63,115 76,315 62,481 56,054 _________ _________ _________ _________ _________Profitattributabletoshareholdersofthebank 45,867 63,115 76,315 62,451 56,038 _________ _________ _________ _________ _________Profitattributabletominorityinterest – – – 30 16 _________ _________ _________ _________ _________Earningspershare 15.7c 21.6c 26.1c 21.4c 19.1c _________ _________ _________ _________ _________Earningspershareforcomparativeperiodshavebeenrestatedasaresultofsharesplitandbonusissueeffectedon1April2005and18April2006respectively.

Group Statements of Comprehensive Income

2009 2008 2007 2006 2005 ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000Profitattributabletoshareholdersofthebank 45,867 63,115 76,315 62,451 56,038

OthercomprehensiveincomeAvailable-for-saleinvestments:–changeinfairvalue 17,693 (9,635) (10,677) (5,977) 2,712–changeinfairvaluetransferredtoprofitorloss (1,268) (1,348) (3,537) (6,340) (2,806)Freeholdandlongleaseholdproperties–revaluation – – 9,789 – –Incometaxes (5,749) 3,844 3,800 4,325 3,790 ______________ ______________ ______________ ______________ ______________

Othercomprehensiveincomefortheyear,netoftax 10,676 (7,139) (625) (7,992) 3,696 _________ _________ _________ _________ _________Totalcomprehensiveincomefortheyear,netoftax 56,543 55,976 75,690 54,459 59,734 _________ _________ _________ _________ _________

Group Income Statements and Statements of Comprehensive Income: Five-Year Comparison

9�


Group Statements of Financial Position: Five-Year Comparison

2009 2008 2007 2006 2005 ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000

AssetsBalanceswithCentralBankofMalta,TreasuryBillsandcash 172,671 130,682 472,136 304,144 179,644Chequesincourseofcollection 10,764 9,308 3,103 24,540 22,658Financialassetsheldfortrading 11,746 11,823 15,980 24,216 9,101Financialassetsdesignatedatfairvaluethroughprofitandloss 248,553 279,714 275,695 261,999 216,937Financialinvestments 478,975 429,912 456,525 391,656 522,944Loansandadvancestobanks 747,657 1,072,306 631,018 596,459 379,413Loansandadvancestocustomers 3,226,477 3,112,240 2,822,315 2,623,169 2,366,838Intangibleassets 60,691 64,256 36,110 25,388 21,973Propertyandequipment 65,397 70,684 77,820 66,648 69,290Investmentproperty 14,588 14,050 12,885 7,959 2,239Assetsheldforsale 10,604 9,168 11,922 9,266 11,456Currenttaxrecoverable 6,164 2,966 2,596 1,877 4,414Deferredtaxassets 9,053 15,916 11,553 – –Otherassets 20,712 25,824 25,855 24,955 20,268Prepaymentsandaccruedincome 33,748 47,239 39,576 33,983 29,974 ______________ ______________ ______________ ______________ ______________

Totalassets 5,117,800 5,296,088 4,895,089 4,396,259 3,857,149 _________ _________ _________ _________ _________LiabilitiesFinancialliabilitiesheldfortrading 11,044 11,381 15,043 24,792 9,434Amountsowedtobanks 168,771 462,185 87,142 294,264 52,800Amountsowedtocustomers 4,086,669 4,016,632 4,039,492 3,436,873 3,184,751Debtsecuritiesinissue – – – – 28Provisionforcurrenttax 207 688 11,043 – –Deferredtaxliabilities 18,851 17,600 12,361 10,729 8,952Liabilitiestocustomersunderinvestmentcontracts 16,853 15,122 18,947 21,321 19,327Liabilitiesunderinsurancecontractsissued 351,513 311,250 290,943 239,390 200,967Otherliabilities 35,479 36,734 32,303 32,183 39,029Accrualsanddeferredincome 33,422 53,930 53,147 42,271 35,022Provisionsforliabilitiesandothercharges 577 312 414 75 58Subordinatedliabilities 87,827 87,777 57,962 – – ______________ ______________ ______________ ______________ ______________

Totalliabilities 4,811,213 5,013,611 4,618,797 4,101,898 3,550,368 ______________ ______________ ______________ ______________ ______________

Equityattributabletoshareholders 306,587 282,477 276,292 294,361 306,017Minorityinterest – – – – 764 ______________ ______________ ______________ ______________ ______________

Totalequity 306,587 282,477 276,292 294,361 306,781 ______________ ______________ ______________ ______________ ______________

Totalliabilitiesandequity 5,117,800 5,296,088 4,895,089 4,396,259 3,857,149 _________ _________ _________ _________ _________MemorandumitemsContingentliabilities 119,449 129,925 129,972 138,779 119,993 _________ _________ _________ _________ _________Commitments 923,900 1,110,572 1,148,034 1,064,288 934,582 _________ _________ _________ _________ _________

9�


2009 2008 2007 2006 2005 ______________ ______________ ______________ ______________ ______________

§000 §000 §000 §000 §000

Netcashfrom/(usedin)operatingactivities 293,498 (309,684) 343,005 (22,241) 135,935 ______________ ______________ ______________ ______________ ______________

CashflowsusedininvestingactivitiesDividendsreceived 387 49 228 172 217Interestreceivedfromfinancialinvestments 16,115 23,884 21,011 26,399 27,484Proceedsfromsaleandmaturityoffinancialinvestments 187,399 88,551 195,078 207,061 133,252Proceedsonsaleofpropertyandequipmentandintangibleassets 2,097 9,755 61 186 615Purchaseoffinancialinvestments (218,285) (83,733) (278,768) (88,169) (86,956)Purchaseofpropertyandequipment,investmentpropertyandintangibleassets (4,174) (7,556) (9,981) (5,383) (6,650)Proceedsonsaleofsharesinsubsidiarycompany – – – 1,048 – ______________ ______________ ______________ ______________ ______________

Netcash(usedin)/frominvestingactivities (16,461) 30,950 (72,371) 141,314 67,962 ______________ ______________ ______________ ______________ ______________

CashflowsusedinfinancingactivitiesDividendspaid (32,817) (50,649) (93,677) (67,827) (66,446)Maturityofdebtsecuritiesinissueandsubordinatedloanstock – – – (28) (46,387)Issueofsubordinatedloanstock – 30,000 58,234 – –Issueofunitstominorityinterest – – – 212 748Subordinatedloanstockissuecosts – (226) (302) – – ______________ ______________ ______________ ______________ ______________

Netcashusedinfinancingactivities (32,817) (20,875) (35,745) (67,643) (112,085) ______________ ______________ ______________ ______________ ______________

Increase/(decrease)incashandcashequivalents 244,220 (299,609) 234,889 51,430 91,812 _________ _________ _________ _________ _________

Group Statements of Cash Flows: Five-Year Comparison

9�


2009 2008 2007 2006 2005 ______________ ______________ ______________ ______________ ______________

% % % % %

Netinterestincomeandotheroperatingincometototalassets 3.1 3.6 4.1 4.0 4.1

Operatingexpensestototalassets 1.6 1.7 1.7 1.8 1.9

Costtoincomeratio 52.5 48.0 42.1 45.5 46.7Profitbeforetaxtototalassets 1.4 1.8 2.3 2.2 2.2

Profitbeforetaxonequity 23.2 34.0 41.5 32.8 27.9

Profitaftertaxtoequity 15.0 22.3 27.6 21.2 18.3

2009 2008 2007 2006 2005 ______________ ______________ ______________ ______________ ______________

Sharesinissue(millions) 291.8 291.8 291.8 291.8 73.0

Netassetsper30eurocentshare(cents)* 105.0 96.8 94.7 100.9 105.1

Earningsper30eurocentshare(cents)* 15.7 21.6 26.1 21.4 19.1

Dividendper30eurocentshare(cents)*–gross 17.3 26.7 49.4 35.9 34.9–net 11.2 17.4 32.1 23.3 22.8

Dividendcover 1.4 1.2 0.8 0.9 0.8

*Ratiosfor2005havebeenrestatedtoreflectthenumberofsharesinissue.

Group Accounting Ratios: Five-Year Comparison

9�


2009 2008 ______________ ______________

US$000 US$000

IncomestatementsNetoperatingincome 230,069 271,342Operatingexpenses (120,711) (130,279)Netimpairmentreversals (6,382) (2,748)Netprovisionsforliabilitiesandothercharges (382) 147 ______________ ______________

Profitbeforetax 102,594 138,462Taxexpense (36,499) (47,513) ______________ ______________

Profitfortheyear 66,095 90,949 _________ _________Profitattributabletoshareholdersofthebank 66,095 90,949 _________ _________StatementsofFinancialPositionAssetsBalanceswithCentralBankofMalta,TreasuryBillsandcash 248,819 188,313Chequesincourseofcollection 15,511 13,413Financialassetsheldfortrading 16,926 17,037Financialassetsatfairvaluethroughprofitorloss 358,165 403,068Financialinvestments 690,203 619,503Loansandadvancestobanks 1,077,374 1,545,193Loansandadvancestocustomers 4,649,353 4,484,738Intangibleassets 87,456 92,593Propertyandequipment 94,237 101,856Investmentproperty 21,021 20,246Assetsheldforsale 15,280 13,211Currenttaxrecoverable 8,882 4,274Deferredtaxassets 13,045 22,935Otherassets 29,846 37,212Prepaymentsandaccruedincome 48,631 68,071 ______________ ______________

Totalassets 7,374,749 7,631,663 _________ _________LiabilitiesandequityFinancialliabilitiesheldfortrading 15,914 16,400Amountsowedtobanks 6243,199 666,009Amountsowedtocustomers 5,888,890 5,787,967Provisionforcurrenttax 298 991Deferredtaxliabilities 27,164 25,362Liabilitiestocustomersunderinvestmentcontracts 24,285 21,791Liabilitiesunderinsurancecontractsissued 506,530 448,511Otherliabilities 51,125 52,933Accrualsanddeferredincome 48,161 77,713Provisionsforliabilitiesandothercharges 832 450Subordinatedliabilities 126,559 126,487Sharecapital 126,162 126,162Revaluationreserve 37,214 21,830Retainedearnings 278,416 259,057 ______________ ______________

Totalliabilitiesandequity 7,374,749 7,631,663 _________ _________TheUSDollarExchangeofsamedatewas§1=US$1.4410.Comparativeresultshavealsobeentranslatedattheserates.

Group Financial Highlights in US dollars

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MALTA OFFICESRegistered Office/Head Office233RepublicStreet,VallettaVLT1116Tel:25970000Fax:23804923

Personal Financial ServicesPersonalFinancialServicesCentre80MillStreet,QormiQRM3101Tel:23801895Fax:23804537Premier Centre Wealth Management OfficePersonalFinancialServicesCentre80MillStreet,QormiQRM3101Tel:21489100Fax:23802219

Business Banking Centre80MillStreet,QormiQRM3101Tel:23801895Fax:23804532International Banking CentreBusinessBankingCentre80MillStreetQormiTel:23801895Fax:23802676Trade ServicesOperationsCentre80MillStreet,QormiQRM3101Tel:23801828Fax:23804535

Operations Centre80MillStreet,QormiQRM3101Tel:23800000Fax:23804923Card Products DivisionOperationsCentre80MillStreet,QormiQRM3101Tel:23802380Fax:23804924Contact CentreOperationsCentre80MillStreet,QormiQRM3101Tel:23802380Fax:21490613

Legal Office116ArchbishopStreetVallettaVLT1114Tel:25972406Fax:25972417ContractsCentre32MerchantsStreet,VallettaVLT1173Tel:25973382Fax:25973306InheritanceUnit1stFloor,32MerchantsStreetVallettaVLT1173Tel:23803360/1/2/3/4Fax:23803365

BRANCHES AND AUTOMATED OFFICES

Attard34MostaRoadATD1434Tel:23802380Fax:21416786BalzanBertuFenechSquareBZN1032Tel:23802380Fax:23801190Birkirkara1NaxxarRoadBKR9049Tel:23802380Fax:23341690BirΩebbu©a2 BirΩebbu©a Road BBG 1508Tel:23802380Fax:23614790Bu©ibbaBaySquareSPB2511Tel:23802380Fax:23347390Cospicua50PilgrimageStreetBML1580Tel:23802380Fax:22934090FguraCouncilofEuropeSquareFGR1254Tel:23802380Fax:23618790

FlorianaDevelopmentHouseFRN9010Tel:23802380Fax:25978990Gudja (Agency)1MainStreetGDJ1201Tel:23802380Fax:21695607GΩira196TheStrandGZR1023Tel:23802380Fax:23243990Óamrun121St.JosephRoadHMR1017Tel:23802380Fax:25972390Luqa143CarmelStreetLQA1319Tel:23802380Fax:23615090Luqa (Bureau)MaltaInternationalAirport,LQA9400Welcomers’HallTel:23802380Fax:21801938AirsideArrivalsArea(AutomatedOffice)

MarsascalaSt.AnthonyStreetMSK9057Tel:23802380Fax:21636860Marsaxlokk (AutomatedOffice)55Xattis-SajjiedaMXK1302Mellie˙a6GorgBorgOlivierStreetMLH1027Tel:23802380Fax:23346890Mosta63ConstitutionStreetMST9058Tel:23802380Fax:23346190Msida52MsidaSeafrontMSD9043Tel:23802380Fax:25978590Msida, University of MaltaRoom6,GroundFloorHumanitiesBuildingMSD2080Tel:23802380Fax:21331377NaxxarVictorySquareNXR1705Tel:23802380Fax:23345990Paceville (AutomatedOffice)EdenSuperBowlSTJ3312Paola12AntoineDePauleSquarePLA1261Tel:23802380Fax:23611390Qormi38St.SebastianStreetQRM2331Tel:23802380Fax:23805490Rabat 12SaqqajjaSquareRBT1190Tel:23802380Fax:23345890San Ìwann198NaxxarRoadSGN9030Tel:23802380Fax:23247590St. JuliansSt.George’sRoadSTJ3202Tel:23802380Fax:23242090St. Paul’s BaySt.Paul’sStreetSPB3419Tel:23802380Fax:23346490Santa VeneraFleur-de-LysJunctionSVR1587Tel:23802380Fax:23802790SliemaHighStreetSLM1549Tel:23802380Fax:23246090Sliema112ManwelDimechStreetSLM1055Tel:23802380Fax:23248090

Sliema – The Plaza (AutomatedOffice)BisazzaStreetSLM1608Sliema ShareShopHighStreetSLM1549Tel:23802381Fax:23246046SwieqiSt.AndrewsRoadSWQ9020Tel:23802380Fax:23248894TarxienMainStreetTXN2556Tel:23802380Fax:22931290Valletta32MerchantsStreetVLT1173Tel:23802380Fax:25973320Ûabbar19SanctuaryStreetZBR1010Tel:23802380Fax:23614290Ûebbu©254MainStreetZBG1304Tel:23802380Fax:22934490Ûejtun25thNovemberAvenueZTN2018Tel:23802380Fax:23615690Ûurrieq38HighStreetZRQ1318Tel:23802380Fax:23617890

GOzO OFFICESVictoria90RepublicStreetVCT1017Tel:23802380Fax:22937192Victoria ShareShop90RepublicStreetVCT1016Tel:22937103 Fax:22937192Nadur (Agency)18St.Peter&St.PaulSquareNDR1010Tel:23802380Fax:21550952Xag˙ra (Agency)8thSeptemberAvenueXRA1011(CornerwithVictoryStreet)Tel:23802380Fax:21556313Xlendi (AutomatedOffice)CallejaFlats,Flat1RabatRoadXLN1104

SUBSIDIARY COMPANIESHSBC Global Asset Management (Malta) Ltd233RepublicStreet,VallettaVLT1116Tel:25975144Fax:22935191HSBC Life Assurance (Malta) LtdPersonalFinancialServicesCentre80MillStreetQormiQRM3101Tel:23808699Fax:23808690HSBC Stockbrokers (Malta) Ltd233RepublicStreet,VallettaVLT1116Tel:25972241Fax:25972494HSBC Securities Services (Malta) Ltd116ArchbishopStreet,VallettaVLT1116Tel:25975126Fax:25975190

Branches and Offices

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 8,000 offices in 87 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.

The HSBC Group

HSBC Bank Malta p.l.c.Registered in Malta: number C3177Registered Office and Head Office: 233 Republic StreetValletta VLT 1116MaltaTelephone: 356 2597 0000Customer Service: 356 2380 2380Facsimile: 356 2380 4923www.hsbc.com.mt

HSBC Holdings plcRegistered Office and Group Head Office:8 Canada SquareLondon E14 5HQUnited KingdomTelephone: 44 020 7991 8888Facsimile: 44 020 7992 4880www.hsbc.com

© Copyright HSBC Bank Malta p.l.c. 2010All 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 Black Sun Plc, London; text pages designed by Group Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, Hong Kong.

Printed by Gutenberg Press, Gudja Malta, on Quatro Art Silk paper using vegetable oil-based inks. Made in Germany, the paper comprises 100% virgin fibre. Pulps used are totally chlorine-free.

ISSN 1811-7570ISBN 978-9932-12-11-9

PhotographyPage 2: Zone V Co. Ltd.Pages 3, 5, 6, 7, 9 and 11: Rene RossignaudPage 8: The Banker, The Financial Times LimitedPage 10: Andrew Gauci AttardPages 12 and 13: Zone V Co. Ltd., Allen Venables and HSBC Bank plc

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233 Republic StreetValletta VLT 1116, MaltaTelephone: 356 2597 0000Customer Service: 356 2380 2380 Facsimile: 356 2380 4923

www.hsbc.com.mt

HSBC Bank Malta p.l.c.

Annual Report and Accounts 2009

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