Demand for residential mortgages is picking up, according to the new man at the helm of HSBC Bank Bermuda Ltd.

The bank’s 2015 full-year earnings statement, released last week, appeared to indicate a fall in demand as the loan portfolio value fell 17 per cent to a total of $2.45 billion by year end.

But Mark Watkinson, who took over from Richard Moseley three months ago as the bank’s chief executive officer, said a trend of higher mortgage demand in the fourth quarter of last year had continued into this year.

The bank remained ready and willing to lend, he said, and explained that the shrinkage in the loans outstanding was a result of repayments outpacing new loan bookings.

“What we have found across the HSBC group is that in this low interest rate environment, people have a natural tendency to pay down debt and Bermuda is no different,” Mr Watkinson said.

“In the last quarter we were in a position where we had more bookings than payments and there was an emerging sense that there was a pickup in activity.

“So far we are seeing that trend continuing into this year. Prices have come down significantly in the last few years and now we are seeing pricing levels at which there are purchasers.”

However, the commercial loans business “remains difficult”, Mr Watkinson said, and any return to growth in this area would likely come from tourism-related or infrastructure projects.

Some of HSBC’s borrowers, however, continue to struggle to meet repayments. The bank classified 17 per cent of its total loans as “non-performing loans” (NPLs), the same level as in 2014. NPLs include delinquencies and some restructured loans.

Phil Alvey, HSBC Bermuda’s acting chief financial officer, said: “Having that level of NPLs is clearly not where we want to be, but we feel that we’re in a better place than we were 12 or 24 months ago. A lot of the work we’re doing with our customers is actually paying off.”

Mr Watkinson said: “Seventeen per cent is high in anybody’s book. My sense is that we have gone through the book, circled the wagons and we are at a stage where we feel that the mortgage book is conservatively provided for.

“Our strategy is all about keeping down the NPLs, keeping down our costs and keeping the top line stable.”

The bank’s parent group HSBC Holdings plc is undergoing a global efficiency drive. Last June, HSBC said it intended to cut 50,000 jobs as it aimed to make annual savings of $5 billion by 2017.

Asked whether there was pressure from head office to cut costs in Bermuda, Mr Watkinson said: “There’s always pressure. We need to understand what our shareholder is looking for from this investment in Bermuda and that is a return on equity. So they are looking for us to demonstrate that we are run efficiently through our efficiency ratio.”

The bank managed to slash its operating expenses, by $18 million, or 9 per cent, last year, to $175 million, largely the result of the sale of much of its Cayman operations to Butterfield Bank in 2014, while headcount in Bermuda remained stable. Mr Watkinson said his job in Bermuda, from an operational perspective, was to hit the group’s core metrics on efficiency and profitability.

The parent company would also be looking for how Bermuda fits into the group’s overall objective of being the world’s leading international bank — pretty well, Mr Watkinson suggested.

“Bermuda is one of the most international markets in the world,” he said.

One of the key challenges for the entire banking sector is the burgeoning regulatory burden around the world. In Bermuda the Basel III regime is being implemented to raise the standards for capital and liquidity, effectively forcing banks to hold more capital in a form that it can liquidate quickly in the case of a sharp economic downturn.

Mr Watkinson said Bermuda’s banks were “extremely well positioned” to meet the enhanced standards, as they were already very liquid. HSBC’s total capital adequacy rating under Basel III rules was 22 per cent, exceeding regulatory requirements, at the end of last year.

Mr Alvey said the HSBC Bermuda was leveraging its group-wide expertise to deal with the compliance burden.