Secure Trust Bank PLC Pre-Close Trading Update (0806U)
January 13 2017 - 2:00AM
UK Regulatory
TIDMSTB
RNS Number : 0806U
Secure Trust Bank PLC
13 January 2017
Secure Trust Bank PLC
13 January 2017
Secure Trust Bank PLC ("STB" or the "Group")
Pre-Close Trading Update
Secure Trust Bank PLC ("STB" or the "Group") today issues a
pre-close trading update ahead of its annual results announcement
for the year ended 31 December 2016 scheduled for 23 March
2017.
A year of excellent progress ended with a very busy and
productive final quarter.
Trading in the final period of the year has been in line with
management's expectations and as a result STB anticipates the full
year results will be in line with market expectations. The combined
effects of the performance of the continuing operations in and the
one off profit arising from the sale of Everyday Loans means that
2016 is expected to be the tenth successive year when the return on
required equity is in the region of 30%. As set out in our interims
results, the significant increase in capital arising from the
disposal of Everyday Loans results in Group ROE reducing while this
capital is re-deployed over time.
In October 2016, the Group completed the move from AIM to the
premium segment of the main market of the London Stock Exchange.
Following the step up, after a very long and distinguished period
as Chairman, Sir Henry Angest retired as Chairman and was succeeded
by Lord Forsyth, an existing independent Non-Executive Director and
a very experienced businessman and politician. Sir Henry Angest
remains on the Board. Further strengthening and diversification of
the Board was achieved in November by the appointment of two new
independent Non-Executive Directors, Ann Berresford, a Chartered
Accountant with a background in financial services and Victoria
Stewart, a well-regarded fund manager.
Given the uncertain economic outlook, STB has continued to focus
on growing its business in a prudent manner, in order to maximise
shareholder value creation rather than solely focusing on balance
sheet scale. To mitigate the potential that weaker economic
conditions and higher inflation could potentially lead to future
increases in impairments particularly in consumer finance, the
Group has tightened credit underwriting standards and increased
pricing in these areas during the final quarter. Despite this, net
balances in Consumer and SME lending have continued to be
successfully grown in line with the strategy to focus on short term
Retail Finance, Motor Finance which provides security in the form
of the vehicle financed and lower loan to value secured SME
lending.
STB's cautious stance differs from a number of other lenders,
particularly in the Unsecured Personal Loan ("UPL") market, where a
significant proportion of loans are used to consolidate debt. On a
number of previous occasions STB has expressed concern about the
competitive dynamics in this market and the potential for risk to
be mispriced. Recent data from the Bank of England has revealed
that consumers are borrowing more than ever on UPL. Despite
forecasts of slower economic growth, unemployment rising from an 11
year low and higher inflation, some lenders are now offering medium
term UPL at record low interest rate margins. STB regards these
dynamics as unsustainable and therefore, having reduced UPL lending
in the first half of 2016, intends to cease originating new UPL
assets at this juncture. STB has a large amount of experience in
the UPL market, having been active since STB's formation in 1952,
but at times has elected to reduce its exposure, for instance
substantially reducing its UPL activity in 2006-08, in response to
an unattractive competitor pricing environment at the time. STB
intends to re-enter the UPL market once the risk adjusted yields
available become more attractive. This decision is not expected to
have a material impact on 2017 earnings.
In December 2016, all UK banks operating on the Standardised
Approach to Capital were advised by the Bank of England that
lending for residential development should be risk weighted at
150%. This represents a substantial increase on the 100% previously
used by many of the smaller banks and will have an impact on
capital requirements in the sector. STB will continue to lend to
proven house builders, but believes it is well placed to manage the
transition to this new higher capital requirement regime given the
short duration of the loan book and STB's existing significant
capital surplus. In addition, new lending is being priced based on
the new higher capital requirement levels to achieve the Group's
target RoE which should mean that the lower RoE back book is
relatively quickly replaced by higher priced new originations. The
fact that all of the competitors affected by the change will have
to reprice their new lending if they wish to sustain their RoE
means that STB is not at a competitive disadvantage albeit it does
mean the cost of financing the building of houses will increase and
there will be less capacity from small banks to lend to support
house building in the UK.
The Basel Committee on Banking Supervision had intended to
announce the outcome of its consultations in respect of the capital
regimes this month. It now appears that it will be March 2017, at
the earliest, before any clarification emerges. STB was awaiting
the outcome of these deliberations prior to launching its
residential owner occupied mortgage product. To avoid further
delays the Group intends to launch its mortgage proposition during
the first quarter of 2017. STB understands that a key sticking
point relates to proposals to introduce a capital floor under the
IRB approach used by the largest banks, with some pushing for a
floor as high as 75% of the risk weights used under the
standardised approach. Such an outcome would largely remove the
substantial capital advantages enjoyed by the systemic banks in
certain lending classes thereby creating a much more level
competitive playing field. This would clearly bode well for smaller
banks in the longer term.
Following the successful completion of a number of complex
projects in 2016 including the divestment of the subprime unsecured
personal loan business of Everyday Loans, the closure of the
current account product and the step up from AIM to the main
market, STB enters 2017 well placed to pursue its strategic
priorities through developing its business model organically and
pursuing M&A opportunities. This coupled with the main market
premium listing and substantial capital resources, positions the
Group well to navigate the evolving economic and regulatory
environment and seek to take full advantage of any opportunities
that may arise.
Enquiries:
Secure Trust Bank PLC Tel: 0121 693 9100
Paul Lynam, Chief Executive
Officer
Neeraj Kapur, Chief
Financial Officer
Alan Karter, Company
Secretary
----------------------------- -------------------
Bell Pottinger Tel: 020 3772 2500
(Financial PR)
Dan de Belder
Aarti Iyer
----------------------------- -------------------
About the Company:
Secure Trust Bank is an established, well-funded and capitalised
UK retail bank with a 64 year trading track record. Secure Trust
Bank operates principally from its head office in Solihull, West
Midlands, and had 630 employees (full-time equivalent) as at 30
June 2016. The Group's diversified lending portfolio currently
focuses on two sectors (i) Business Finance through its Real Estate
Finance, Asset Finance and Commercial Finance divisions and (ii)
Consumer Finance through its Personal Lending, Motor Finance and
Retail Finance divisions.
As at 30 June 2016 the Group's loans and advances to customers
totalled GBP1,128.3 million, customer deposits totalled GBP1,042.6
million and the Group's total customer base exceeded 600,000.
This information is provided by RNS
The company news service from the London Stock Exchange
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