Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Secure Trust Bank PLC (LSE:STB, Financial) reported a 7.9% increase in operating income compared to the first half of 2023, demonstrating effective execution of their growth plan.
- The company achieved a 12.4% increase in profit before tax pre-impairments over the first half of 2023, driven by lending growth and disciplined cost management.
- Net lending grew by 3.2% to GBP3.4 billion, and customer deposits increased by 6% to GBP3 billion since the end of 2023.
- Secure Trust Bank PLC (LSE:STB) is on track to deliver GBP5 million of cost savings from Project Fusion by the end of the year, with an upgraded target of GBP8 million by the end of 2025.
- The company maintained a strong CET1 ratio of 12.7%, comfortably above the regulatory minimum, supporting their growth plans.
Negative Points
- The net interest margin (NIM) decreased slightly to 5.3% from 5.4% due to higher retail funding costs.
- The cost of risk increased by 20 basis points to 1.7%, primarily driven by a pause in collections activity in the vehicle finance business.
- Return on average equity reduced to 7.3% due to increased payment charges during the period.
- Impairments in the vehicle finance business rose by 23.2% due to the FCA's borrowers in financial difficulty review.
- Profit before tax decreased by 1.7% compared to the same period last year, reflecting challenges in certain business segments.
Q & A Highlights
Q: To what extent can the defaulted loans in Vehicle Finance be recovered in the second half of the year, and will the impairments be released back to the P&L?
A: David McCreadie, CEO, expressed high confidence in recovering the inflated default balances and releasing impairments in the second half. Progress has been made in returning to near-normal levels of collections activity, including repossessions. The focus is on maintaining this momentum to unlock value.
Q: What is the thought process regarding early repayment of TFSME, and do you plan to repay the remainder before its maturity date?
A: Rachel Lawrence, CFO, stated that the bank has started early repayment of TFSME, with GBP75 million already repaid. The plan is to continue monitoring the market and repay more if conditions allow, aiming to manage the peak in September 2025.
Q: How do you expect the business mix to change, particularly on the consumer side, and are you happy with the current mix?
A: David McCreadie, CEO, indicated a potential 1-2% shift towards consumer lending, aiming for a 55% consumer to 45% business mix. The current mix is close to this target, and recent changes have already improved the net interest margin.
Q: What are the expectations for H2 costs, and will there be any significant changes from H1?
A: Rachel Lawrence, CFO, does not expect a material increase in costs for the second half of the year. The cost growth has been minimal, and there were no one-off specifics in H1 that would not recur in H2.
Q: What is the competitive landscape on the deposit side, and how might it affect your strategy?
A: Rachel Lawrence, CFO, noted that the bank's diversified portfolio allows for flexibility in asset pricing. The focus is on maintaining competitive rates to support growth plans, with hopes for further base rate cuts to aid margin expansion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
