CYBG warns of price pressures as profitability rises

● The supply of mortgages remains one of Clydesdale Bank’s key profit drivers

The Clydesdale and Yorkshire banking group (CYBG) has reported a one-third rise in annual earnings, but joined other challenger banks in warning of price pressures in a “competitive” lending market.

The key profit drivers for CYBG, which demerged from former owner National Australia Bank last year, were home loans and lending to small businesses, with underlying pre-tax profits of £293 million in the year to end-september. That compared with £221m the previous 12 months.

The group also announced its inaugural shareholder dividend payout of 1p a share. But Glasgow-based CYBG gave a more cautious view of the market going forward as it said it was facing stiff competition.

CYBG said in its stock exchange statement: “It is likely that we will see future price pressure in the mortgage and unsecured personal loan marper ket.” Shares nudged up 0.8p to close at 309.2p.

The group saw mortgage lending rise 8 per cent to £23.5 billion, while lending to small and medium-sized businesses increased 6 per cent to £6.8bn. Deposits grew 3 per cent to £27.7bn.

The bank’s profit hike came in spite of a £58m bottom-line impact largely from higherthan-expected payment protection insurance (PPI) misselling charges.

CYBG said underlying operating costs were 7 per cent lower over the year. The lender is targeting more than £100m of cost-savings by 2019 – a drive which saw it announce plans in January to shut about a third of its branch network in 2017 and axe 400 jobs.

Debbie Crosbie, group chief operating officer, said the lender had no announcement on any further redundancies “but inevitably we are always looking at cost efficiencies”.

She said the bank’s net interest margin – the difference between what it charges borrowers and pays to savers – had edged up slightly to 2.27 cent from 2.26 per cent “but we think there will be a little pressure in the coming months. However, we are confident that income will grow”.

Amid concerns expressed by the Bank of England about a possible credit bubble in unsecured lending, Crosbie said: “We have not participated in low-level price wars.

“We would not describe it as a credit card bubble as such, but we are watching things carefully.” She added that Clydesdale and Yorkshire banks were particularly pleased with progress on the mortgages front, with them being able to give home loans approval in principle online in less than ten minutes, and in ten days for the full application.

CYBG saud it was also was focusing its £350m investment budget on digital banking services, helping it get ready for the so-called open banking revolution and compete with the country’s “Big Five” lenders. Britain’s banks are getting ready for open banking, which involves sharing customers’ data with third parties that can then use it to recommend products.