The Clydesdale and Yorkshire Bank Group reported a solid third quarter with operating costs expected to come in below guidance, underlining a turnaround in the face of a more subdued lending environment.
In a trading update, released on Tuesday, the National Australia Bank offshoot said mortgage growth for the nine months to the end of June is up 5.8 per cent and core SME lending is up 4.7 per cent. The head of the Glasgow-based bank, David Duffy, said the lender continues to deliver on its strategic objectives in what it describes as the “uncertain” economic and political environment.
Net interest margin rose to 2.29 per cent in the nine months with management continuing to see the benefits of “deposit repricing and other funding actions offsetting the impact of asset yield pressures.”
Unsecured personal loans rose to £1.2 billion in the June quarter, up from £1.1 billion in the previous quarter, with loan growth for the nine months to date at 3.1 per cent.
However deposits continued to drop to £26.2 billion in the third quarter from 26.3 billion in the second a quarter and £27 billion in the first. All up, deposits have fallen 4 per cent since the start of the year.
Clydesdale, in fact, missed market expectations in the first half, despite posting a stellar 15 per cent lift in underlying pre tax profit to £123 million as loan growth was at the lower end of targets at 4 per cent and deposits fell 2.5 per cent on lower fixed-rate balances.
Nevertheless, the bank’s cost-out story remains intact.
Starting with a first-half 70 per cent cost-to-income ratio, Duffy’s target is to cut the ratio to between 55 per cent and 58 per cent and deliver double-digit return-on-equity by the end of the 2019 financial year.
This would mean achieving more than £100 million of underlying cost savings.
“We remain on track to deliver our guidance for full year 2017, and now expect underlying operating costs to be below £680 million ahead of previous guidance of between £690-700 million,” he said.
Analysts predict the denominator in the cost-to-income ratio would be a different matter in a weakening economy given slowing top line growth although it might take him until 2020.
Duffy said improvements during the year have enabled customer loan growth and cost efficiencies.
Clydesdale’s core equity tier one capital stands at 12.4 per cent. This is down on the down on 12.5 per cent reported at the end of March but within its target range of between 12 per cent and 13 per cent.