Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OSB Group PLC (OSBGF, Financial) maintained a strong return on equity (ROE) of 18%, supported by a robust CET1 ratio, enabling capital returns to shareholders through dividends and a GBP50 million share buyback.
- The company demonstrated disciplined pricing in a competitive market, maintaining high-quality underwriting standards, which resulted in an impairment release in the first half.
- Retail deposits grew by 10% in the first half, with a high retention rate of maturing fixed-rate savings customers, indicating strong customer loyalty and satisfaction.
- The Group successfully completed two securitizations, raising GBP839 million, which contributed to the repayment of TFSME borrowings without widening spreads.
- OSB Group PLC (OSBGF) is investing in technology, launching a mobile app for intermediaries and planning a new savings platform to enhance customer engagement and operational efficiency.
Negative Points
- Net loan book growth was slightly lower than originally guided due to pricing discipline amidst high competition, impacting overall growth.
- The net interest margin (NIM) faced pressure from lower prevailing spreads on mortgages and deposits, with guidance for 2024 set between 230 and 240 basis points.
- The cost-to-income ratio is expected to rise to around 36% due to income dynamics, despite maintaining cost discipline.
- There was a small increase in arrears to 1.6%, reflecting the impact of higher borrowing costs on some borrowers.
- The buy-to-let market remains subdued, with competitive pressures affecting the Precise brand, leading to higher and earlier redemptions.
Q & A Highlights
Q: Could you explain the EIR assumptions within your NIM guidance range and what might prevent NIM expansion into 2025?
A: Victoria Hyde, CFO, explained that early signs of borrower behavior changes were observed, but it's too early to determine a trend. If borrowers spend less time on reversion, it could lower EIR assumptions, affecting the lower end of the guidance. Andy Golding, CEO, added that competitive pressures and market dynamics could impact NIM expansion, but a supportive macro environment and cautious re-entry into cyclical markets could be beneficial.
Q: How likely is it that the EIR behavior assumption will shift from five months to two months, and how sustainable is the updated cost-income ratio?
A: Victoria Hyde noted that while the EIR sensitivity has reduced, a shift from five to two months is not immediate and depends on external factors. The cost-income ratio of 36% is driven by income dynamics, and while costs may rise slightly due to investments, the bank remains efficient with low ratios.
Q: What is the niche for the Precise brand, and how do you maintain pricing power amid competition?
A: Andy Golding emphasized Precise's strength in the smaller portfolio landlord market and its potential in specialist residential lending. The brand's expertise in bridging and residential segments offers strong margins, and the bank maintains a disciplined approach to pricing, focusing on return on equity.
Q: Why might EIR assumptions reduce again, and what is the front book-back book spread?
A: Victoria Hyde explained that competitive dynamics and customer behavior might lead to reduced EIR assumptions. The bank focuses on ensuring the front book provides long-term accretion, while the back book roll-off of higher margins is managed through disciplined pricing.
Q: How do you view the buy-to-let market given policy changes favoring homeownership, and what are your through-the-cycle margin expectations?
A: Andy Golding acknowledged challenges in the buy-to-let market but emphasized the resilience of professional landlords. The bank's focus on professional portfolio landlords remains strong, and through-the-cycle margins are expected to be between 240 and 280 basis points, considering MREL impacts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
