Squeezed: Profits at OneSavings Bank fell 30% to £374m
Shares in OneSavings Bank slumped sharply yesterday as it became the latest mid-size lender to feel the pinch from tough market conditions.
Profits fell 30 per cent to £374million as its net interest margin – a key measure of profitability – was squeezed by a big change in borrowers’ behaviour last year.
However, the lender said the margin would be no better for this year thanks to delays in passing on the impact of higher borrowing costs to customers.
That sent shares down nearly 30 per cent at one stage. They closed 73.8p, or 16 per cent, lower at 387.2p.
The results came a day after Metro Bank, which is another challenger to the UK’s larger lenders, announced cost savings and job cuts as it battles to recover after a rescue deal last autumn.
Elsewhere, Virgin Money has agreed a takeover by Nationwide, Britain’s biggest mortgage lender, Tesco Bank has been snapped up by Barclays and Co-op Bank has been in talks over being acquired by Coventry Building Society.
OneSavings Bank mainly focuses on buy-to-let and commercial lending.
Its latest results reflect a £182million hit revealed last summer caused by the changing behaviour of borrowers in response to interest rate movements.
Borrowers coming to an end of fixed-rate deals were moving faster to refinance on new deals, so they spent less time on the higher ‘reversion’ rate – the default when fixed terms end – than previously expected.
Yesterday’s results suggested that issue had subsided, but this year it faces challenges including repaying funds to the Bank of England when it doled out £180billion to the industry to support pandemic-era lending.
The bank grew its loan book by 9 per cent to £26billion last year but expects that to slow to 5 per cent for 2024.
At the same time, the cost of funding those loans is rising, chief executive Andy Golding said.
Banks benefited last year as interest rates rose and the gap between their lending rates and those paid to savers grew, but are now seeing that return to more normal levels.
Analysts at Peel Hunt said that the lower interest rate margins were likely to cause earnings downgrades of more than 5 per cent for this year ‘with probably lowered expectations for years thereafter’.
