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Squeezed: OneSavings Bank profits fell 30% to £374m
Shares in OneSavings Bank plunged sharply yesterday as it became the latest midsize lender to feel the impact of difficult market conditions.
Profits fell 30 per cent to £374m as its net interest margin – a key measure of profitability – was squeezed by a big change in borrower behavior last year.
However, the lender said the margin would not be better this year thanks to delays in passing on the impact of higher borrowing costs to customers.
That sent the stock down nearly 30 percent at one point. They closed 73.8p, or 16 per cent, lower at 387.2p.
The results came a day after Metro Bank, which is another rival to the UK’s big lenders, announced cost savings and job cuts as it struggles to recover after a bailout deal last autumn.
Elsewhere, Virgin Money has agreed a takeover by Nationwide, Britain’s largest mortgage lender, Tesco Bank has been acquired by Barclays and Co-op Bank has been in talks to be acquired by Coventry Building Society.
OneSavings Bank focuses primarily on commercial and buy-to-let loans.
Its latest results reflect a £182m hit revealed last summer caused by changing behavior of borrowers in response to interest rate movements.
Borrowers who were reaching the end of their fixed-rate agreements were moving faster to refinance new agreements, so they spent less time at the highest ‘reversion’ rate (the default value when fixed terms end) than they would otherwise. that was previously expected.
Yesterday’s results suggested the problem had eased, but it faces challenges this year, including repaying funds to the Bank of England when it handed out £180bn to the industry to support pandemic-era loans.
The bank increased its loan book by 9 per cent to £26 billion last year, but expects it to slow to 5 per cent by 2024.
At the same time, the cost of financing those loans is rising, said CEO Andy Golding.
Banks benefited last year when interest rates rose and the gap between their lending rates and those paid to savers grew, but they are now seeing that rate return to more normal levels.
Analysts at Peel Hunt said lower interest rate spreads would likely lead to profit reductions of more than 5 per cent for this year “with likely lower expectations for subsequent years”.