Release Date: March 13, 2025
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) delivered strong growth in net lending, increasing by 8.8% to GBP3.6 billion.
- The company achieved significant operational efficiencies, with a 3.1 percentage point reduction in the cost-income ratio to 50.9%.
- Retail finance saw a 40-basis point improvement in net interest margin (NIM) year on year to 6.8%, contributing to overall margin stability.
- The company implemented a new progressive dividend policy, resulting in a total dividend increase of 5% for the year.
- Secure Trust Bank PLC (LSE:STB) has a clear pathway to achieving its GBP4 billion net loan book target, supporting a 14% to 16% return on average equity.
Negative Points
- The vehicle finance division faced significant challenges, with a cost of risk increasing from 3.4% to 7.6% due to regulatory impacts.
- Statutory profit before tax was impacted by exceptional items, including GBP6.9 million for potential redress and costs for motor finance commission.
- The company's adjusted profit before tax decreased by 8.2% year on year to GBP39.1 million.
- Commercial finance contracted by 7.9% due to a subdued market for new business and economic climate attrition.
- There is ongoing legal and regulatory uncertainty regarding historic commissions in the motor finance industry, which could materially impact financial outcomes.
Q & A Highlights
Q: Can Secure Trust Bank PLC achieve a lower cost-income ratio, potentially closer to 40%?
A: David McCreadie, CEO, explained that while the medium-term target is to reduce the cost-income ratio to 44%-46%, the bank is currently focused on achieving this target. Further reductions will be considered once the GBP4 billion net lending level is reached, and future strategies are assessed.
Q: How will the net interest margin (NIM) be affected in a lower rate environment?
A: Rachel Lawrence, CFO, noted that the business model, particularly in retail finance, benefits from a lag effect when rates decrease, which positively impacts NIM. The bank is confident in maintaining a 5.5% NIM in the medium term, despite potential pressures from a lower rate environment.
Q: What is the probability of the motor finance provision being higher or lower than expected?
A: Rachel Lawrence stated that due to significant uncertainty, the bank has used a probability-weighted approach across various scenarios. The provision reflects the bank's unique distribution model, which differs from peers, and the outcome will depend on the Supreme Court's decision and regulatory actions.
Q: What strategic changes are planned for the vehicle finance division?
A: David McCreadie mentioned that the bank will focus on higher-return segments within vehicle finance. While growth will continue, it will be at a slower rate, with changes in new business being implemented this quarter. The bank will also assess cost management within the division.
Q: What are the expectations for loan growth after reaching the GBP4 billion net lending target?
A: David McCreadie indicated that after reaching the GBP4 billion target, growth rates are expected to be in the mid-to-high single digits. The bank will review its strategy to focus on generating higher returns on equity beyond the current targets.
Q: How has the competitive landscape in motor finance changed due to regulatory focus?
A: David McCreadie noted minimal changes in the competitive landscape, with some competitors slowing down or exiting certain markets. The outcome of legal and regulatory reviews may lead to further changes, potentially creating opportunities for remaining players.
Q: What are the key drivers of profit growth in the retail finance business?
A: David McCreadie attributed the growth to leveraging technology, strong market relationships, competitive pricing, and operational leverage. The bank has gained market share by focusing on key retail sectors and plans to explore additional segments within retail finance.
Q: How confident is the bank in its capital surplus given the uncertainty in vehicle finance commissions?
A: Rachel Lawrence expressed confidence in the bank's capital management, noting that stress tests and buffers are in place to absorb potential downside scenarios. The bank's accounts have been signed off, indicating a strong capital position despite uncertainties.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
