TIDMOSB
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OneSavings Bank plc: Trading update
Published: 06.05.2020
OneSavings Bank plc
Trading update
OneSavings Bank plc ('OSB' or 'the Group'), the specialist lending and
retail savings group, today issues its trading update for the period
from the 1(st) January 2020 to date.
Highlights
-- Organic originations of GBP1.5bn in the first three months of 2020 (Q1
2019 statutory: GBP799m for OSB and GBP710m for Charter Court Financial
Services Group ('CCFS')).
-- Underlying1 net loans and advances increased by 5% in the first quarter,
excluding the impact of structured asset sales. On an underlying1 basis,
after structured asset sales, net loans and advances as at 31 March 2020
remained unchanged at GBP18.2bn (31 December 2019: pro forma underlying2
GBP18.2bn). On a statutory basis, net loans and advances were GBP18.4bn
(31 December 2019: GBP18.4bn).
-- Underlying1 and statutory retail deposits of GBP16.3bn as at 31 March
2020 (31 December 2019: pro forma underlying2 GBP16.2bn, statutory
GBP16.3bn).
-- Underlying1 net interest margin ('NIM') for the first three months of
2020 broadly flat to full year 2019 pro forma underlying2 NIM of 266bps.
-- On a pro forma basis the CET1 ratio would have been 17.2% as at the end
of December 2019 (reported 16.0%), after removing the final dividend and
reducing risk weighted assets ('RWAs') by c. GBP287m relating to
structured asset sales in January 2020.
-- Strong operational resilience across both the UK and India.
1. Underlying refers to results and ratios which exclude exceptional
items, integration costs and other acquisition-related items arising
from the Combination with CCFS.
2. Pro forma underlying refers to ratios and results which assume that
the Combination with CCFS occurred on 1 January 2018 and include 12
months of results from CCFS and exclude exceptional items, integration
costs and other acquisition-related items arising from the Combination
with CCFS.
Andy Golding, CEO of OneSavings Bank, said:
"I am extremely proud of the resilience that OSB has demonstrated in the
current difficult conditions. Our customers are at the heart of
everything we do and we have concentrated on delivering the continuity
and quality of service they expect of us. We entered the crisis with
exceptionally strong capital and liquidity positions which allowed us to
rapidly assist those concerned about potential financial difficulty by
offering payment holidays on a self-certified basis. We demonstrated our
flexibility by redeploying our employees to meet the large increase in
call volumes. We started the year with a strong pipeline of new business
and continue to lend to new and existing customers, prudently and with a
reduced suite of products. We have enhanced our underwriting to accept
desktop valuations due to the inability to perform physical valuations
at present.
The UK and global economies continue to experience unprecedented
uncertainty stemming from COVID-19. It is too soon to say what the
longer term impact will be on our business, but we entered this period
with a strong and secured balance sheet, sensible LTVs and strong risk
management capabilities equipping us well to navigate the current
situation. I would like to finish by taking the opportunity to thank all
of my colleagues for their resilience, dedication, support and hard work
which have allowed us to continue to provide our customers with the
quality service they expect through these difficult times."
Operational resilience
Our current priority is to assist our customers to the best of our
ability through the coronavirus crisis, and it is paramount to protect
the safety and wellbeing of our employees. More than 75% of our
employees, including 85% in India, are currently working from home,
supported by appropriate technology. Our small branch network remains
open, and those who work in offices are doing so under strict distancing
protocols. In India, we have been granted a number of Government
licences for critical staff to attend offices in three locations,
further enhancing our operational resilience.
As expected, the Group saw an increased level of enquiries relating to
both mortgage and savings products as soon as the crisis began.
Resources were redeployed to best respond to additional call volumes
from mortgage borrowers requesting our assistance in providing payment
holidays. We are pleased with how quickly we were able to act, and
mortgage call volumes have now reduced to normal levels.
Integration
We are making good progress on the integration with CCFS. There are
detailed plans for each workstream in place with a number of them
already completed. An early success is the integration of the capital
markets team, who delivered three successful securitisations and two
remunerative structured asset sales during the first quarter.
Capital and liquidity
A strong capital and liquidity position is crucial in the current
uncertain economic environment in order for us to maintain our position
as a leading specialist lender and to continue to support all of our
stakeholders.
OSB entered 2020 with an extremely strong CET1 ratio of 16.0% (pro forma
CET1 of 17.2% as at 31 December 2019, after removing the final 2019
dividend and reducing RWAs by c. GBP287m relating to structured asset
sales in January 2020).
The Group remains highly liquid and in March took early action to
increase liquidity given the uncertain economic outlook, by drawing an
additional GBP645m through the Index Long-Term Repo ('ILTR') scheme on
19 March. We closed the first quarter with total drawings under the
scheme of GBP855m. To date, we have also seen steady net retail deposit
inflows for both Kent Reliance and Charter Savings Bank, with strong
demand during the ISA season and high levels of retention amongst
customers with maturing fixed rate products.
The liquidity coverage ratios increased during the first quarter to 247%
and 170% for OSB and Charter Court Financial Services, respectively (31
December 2019: 199% and 145%, respectively).
The Group has applied for the Bank of England's Term Funding Scheme for
SMEs ('TFSME') and anticipates an initial borrowing allowance of c.
GBP1.7bn. It is intended to use the funding from the initial allowance
to refinance and extend the duration of drawings under the Bank of
England's ILTR scheme and the previous TFS scheme.
In March 2020 the Group securitised GBP1bn of organically-originated
mortgage assets under the Canterbury Finance programme retaining all of
the notes, including GBP860m of AAA rated senior bonds. This transaction
provides a sizeable pool of collateral that significantly increases the
contingent wholesale funding options available to us through commercial
repo transactions. Once approved, the bonds can also be used, in place
of whole loan mortgage collateral, against the Bank of England ILTR, TFS
and TFSME facilities at significantly reduced haircuts.
Net interest margin ('NIM')
Underlying NIM(1) for the first quarter of 2020 was broadly flat to full
year 2019 pro forma underlying NIM(2) of 266bps. However the cost of the
additional liquidity the Group is prudently holding, and delays in the
retail savings market passing on the base rate cuts in full, are a
current and potential future drag on NIM. In partial mitigation, rates
in the retail savings market are continuing to fall and the Group has
kept pricing on fixed rate mortgages unchanged and also expects to
benefit from the Bank of England TFSME scheme. The Group intends to use
the TFSME to refinance its drawings under the TFS scheme for another
four years and to refinance drawings under the ILTR scheme at a lower
rate. The Group had previously planned to start repaying the original
TFS scheme in 2020. In addition, NIM may also be impacted by changes in
borrower behaviour, leading to revised prepayment rate, expected life
and redemption profile assumptions in EIR income recognition.
New business
We are continuing to focus on serving our customers as well as we can,
despite the wider standstill and impact of Government restrictions on
the housing market. Towards the end of March and throughout April, we
concentrated on our existing pipeline of applications, and ensured that
resources were available to support those customers who wished to take a
payment holiday.
OSB continues to support existing and new customers by accepting
applications across our core businesses. However, given the current
uncertain economic situation, we are operating with tightened criteria
for LTVs and loan sizes to remain within our risk appetite, and meet
valuer criteria for enhanced desktop valuations whilst physical property
valuations remain unavailable. We continue to offer product transfers to
qualifying customers whose mortgages approach maturity.
Payment holidays
OSB has responded rapidly to support our customers who may be facing
financial difficulty by offering self-certified payment holidays of up
to three months. Take-up levels have been high, but many people
requesting payment holidays are doing so to prudently safeguard
cashflow. Market research amongst Buy-to-Let landlords conducted on
behalf of OSB(3) indicates that rents are still being received, with
only 12-15% of landlords who have requested a payment holiday giving the
reason as 'tenants having stopped paying rent'
As at the end of April 2020, the Group granted payment holidays to c.24k
accounts, equivalent to 26.7% of the Group's mortgage book by value(4) .
Volumes of requests were high when the scheme was first announced, but
have since reduced significantly.
Credit
The percentage of loans and advances in three months plus arrears as at
the end of March, was 1.3% for OSB and 0.4% for CCFS (31 December 2019:
1.3% and 0.3%, respectively). We have a high quality secured lending
book with strong LTVs, with the weighted average LTV of the loan book at
68% for OSB and 70% for CCFS as at 31 December 2019.
The Group, in line with the industry and guidance from regulators, does
not consider payment holidays as an automatic transfer from stage 1 to
stage 2 under IFRS 9. It is too early to predict how borrowers will
behave after the end of the payment holiday or what the potential
macroeconomic impact of the current crisis will be. However the Group
receives updated macroeconomic scenarios from its advisors on a regular
basis, the latest version of which is shown in the table below. Applying
these updated scenarios as at 31 March 2020 would result in an
approximate doubling of the Group's expected credit loss provision
balance versus the balance of GBP42.9m as at 31 December 2019.
Scenario (%)
--------- ----------- ------------------- -----------------------
Scenario Probability Economic measure Year end 2020 Year end
weighting 2021
(%)
--------- ----------- ------------------- ------------- --------
Base case 40 GDP (6) 4
Unemployment 7.8 7.1
House price growth (14.3) (0.3)
--------- ----------- ------------------- ------------- --------
Upside 30 GDP (3) 4
Unemployment 7.0 5.5
House price growth (11.9) 6.5
--------- ----------- ------------------- ------------- --------
Downside 23 GDP (9) 3
Unemployment 9.3 9.5
House price growth (19.4) (10.0)
--------- ----------- ------------------- ------------- --------
Severe 7 GDP (10) 3
Downside Unemployment 9.8 10.4
House price growth (21.0) (14.8)
--------- ----------- ------------------- ------------- --------
The economic outlook remains uncertain, and the future level of arrears
and impairment charges may worsen depending on the longevity of the
COVID-19 pandemic and related containment measures, as well as the
longer term effectiveness of central bank, government and other support
measures.
2020 Executive remuneration
Members of the Group Executive Committee have volunteered to forgo their
2020 cash bonus. Half of their 2020 cash bonus will be retained in the
business and the remaining half will be donated to charity. The minimum
to be donated has been underwritten at GBP250k by the Group, with a
GBP100k donation to Shelter which offers support and advice to those
facing housing issues or homelessness across the UK. The remainder will
be donated to charities that serve homeless people in the UK communities
in which the Group is based and to provide medical equipment to a local
hospital in India.
(1) Underlying NIM excludes exceptional items, integration costs and
other acquisition-related items arising from the Combination with CCFS.
(2) Pro forma underlying NIM assumes that the Combination with CCFS
occurred on 1 January 2018 and includes 12 months of results from CCFS
and excludes exceptional items, integration costs and other
acquisition-related items arising from the Combination with CCFS.
(3) Independent research conducted for OSB by BDRC and Savanta, April
2020.
(4) Excludes development finance, asset finance and funding lines.
Enquiries:
OneSavings Bank plc
Alastair Pate t: 01634 838 973
Brunswick Group
Robin Wrench / Simone Selzer t: 020 7404 5959
Analyst presentation
A webcast and a conference call will be held at 10:00am on Wednesday 6
May and both will be available on the OneSavings Bank website at
www.osb.co.uk/investors/results-reports-presentations. Registration is
open immediately.
About OneSavings Bank plc
OneSavings Bank plc (OSB) began trading as a bank on 1 February 2011 and
was admitted to the main market of the London Stock Exchange in June
2014 (OSB.L). OSB joined the FTSE 250 index in June 2015. On 4 October
2019, OSB acquired Charter Court Financial Services Group plc (CCFS) and
its subsidiary businesses. OSB is a specialist lending and retail
savings Group authorised by the Prudential Regulation Authority, part of
the Bank of England, and regulated by the Financial Conduct Authority
and Prudential Regulation Authority.
OneSavings Bank
OSB primarily targets market sub-sectors that offer high growth
potential and attractive risk-adjusted returns in which it can take a
leading position and where it has established expertise, platforms and
capabilities. These include private rented sector Buy-to-Let, commercial
and semi-commercial mortgages, residential development finance, bespoke
and specialist residential lending, secured funding lines and asset
finance.
OSB originates mortgages organically via specialist brokers and
independent financial advisers through its specialist brands including
Kent Reliance for Intermediaries, InterBay Commercial and Prestige
Finance. It is differentiated through its use of highly skilled, bespoke
underwriting and efficient operating model.
OSB is predominantly funded by retail savings originated through the
long-established Kent Reliance name, which includes online and postal
channels as well as a network of branches in the South East of England.
Diversification of funding is currently provided by securitisation
programmes, the Term Funding Scheme and the Bank of England Indexed
Long-Term Repo operation.
Charter Court Financial Services Group
CCFS focuses on providing Buy-to-Let and specialist residential
mortgages, mortgage servicing, administration and credit consultancy and
retail savings products. It operates through its three brands -- Precise
Mortgages, Exact Mortgage Experts and Charter Savings Bank.
It is differentiated through risk management expertise and best-of-breed
automated technology and systems, ensuring efficient processing, strong
credit and collateral risk control and speed of product development and
innovation. These factors have enabled strong balance sheet growth
whilst maintaining high credit quality mortgage assets.
CCFS is predominantly funded by retail savings originated through its
Charter Savings Bank brand. Diversification of funding is currently
provided by securitisation programmes, the Term Funding Scheme and the
Bank of England Indexed Long-Term Repo operation.
Important disclaimer
This document should be read in conjunction with the documents
distributed by OneSavings Bank plc ('OSB') through the Regulatory News
Service ('RNS'). This document is not audited and contains certain
forward-looking statements, beliefs or opinions, including statements
with respect to the business, strategy and plans of OSB and its current
goals and expectations relating to its future financial condition,
performance and results. Such forward-looking statements include,
without limitation, those preceded by, followed by or that include the
words 'targets', 'believes', 'estimates', 'expects', 'aims', 'intends',
'will', 'may', 'anticipates', 'projects', 'plans', 'forecasts',
'outlook', 'likely', 'guidance', 'trends', 'future', 'would', 'could',
'should' or similar expressions or negatives thereof. Statements that
are not historical facts, including statements about OSB's, its
directors' and/or management's beliefs and expectations, are
forward-looking statements. By their nature, forward-looking statements
involve risk and uncertainty because they relate to events and depend
upon circumstances that may or may not occur in the future. Factors that
could cause actual business, strategy, plans and/or results (including
but not limited to the payment of dividends) to differ materially from
the plans, objectives, expectations, estimates and intentions expressed
in such forward-looking statements made by OSB or on its behalf include,
but are not limited to: general economic and business conditions in the
UK and internationally; market related trends and developments;
fluctuations in exchange rates, stock markets, inflation, deflation,
interest rates and currencies; policies of the Bank of England, the
European Central Bank and other G8 central banks; the ability to access
sufficient sources of capital, liquidity and funding when required;
changes to OSB's credit ratings; the ability to derive cost savings;
changing demographic developments, and changing customer behaviour,
including consumer spending, saving and borrowing habits; changes in
customer preferences; changes to borrower or counterparty credit
quality; instability in the global financial markets, including Eurozone
instability, the potential for countries to exit the European Union (the
"EU") or the Eurozone, and the impact of any sovereign credit rating
downgrade or other sovereign financial issues; technological changes and
risks to cyber security; natural and other disasters, adverse weather
and similar contingencies outside OSB's control; inadequate or failed
internal or external processes, people and systems; terrorist acts and
other acts of war or hostility and responses to those acts; geopolitical,
pandemic or other such events; changes in laws, regulations, taxation,
accounting standards or practices, including as a result of an exit by
the UK from the EU; regulatory capital or liquidity requirements and
similar contingencies outside OSB's control; the policies and actions of
governmental or regulatory authorities in the UK, the EU or elsewhere
including the implementation and interpretation of key legislation and
regulation; the ability to attract and retain senior management and
other employees; the extent of any future impairment charges or
write-downs caused by, but not limited to, depressed asset valuations,
market disruptions and illiquid markets; market relating trends and
developments; exposure to regulatory scrutiny, legal proceedings,
regulatory investigations or complaints; changes in competition and
pricing environments; the inability to hedge certain risks economically;
the adequacy of loss reserves; the actions of competitors, including
non-bank financial services and lending companies; and the success of
OSB in managing the risks of the foregoing.
Accordingly, no reliance may be placed on any forward-looking statement
and no representation, warranty or assurance is made that any of these
statements or forecasts will come to pass or that any forecast results
will be achieved. Any forward-looking statements made in this document
speak only as of the date they are made and it should not be assumed
that they have been revised or updated in the light of new information
of future events. Except as required by the Prudential Regulation
Authority, the Financial Conduct Authority, the London Stock Exchange
PLC or applicable law, OSB expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this document to reflect any
change in OSB's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based. For
additional information on possible risks to OSB's business, please see
Risk review section in the OSB 2019 Annual Report and Accounts. Copies
of this are available at
https://www.globenewswire.com/Tracker?data=JYtKkcIlX0ZM_MVlqmePKKde1v0jsTLviE7yOzZJoz37wPrWVfpE5-fpi6tc8hnSas_ZGi3FixNJ0fL_r0I8hg==
www.osb.co.uk and on request from OSB.
Nothing in this document and any subsequent discussion constitutes or
forms part of a public offer under any applicable law or an offer to
purchase or sell any securities or financial instruments. Nor does it
constitute advice or a recommendation with respect to such securities or
financial instruments, or any invitation or inducement to engage in
investment activity under section 21 of the Financial Services and
Markets Act 2000. Past performance cannot be relied on as a guide to
future performance. Nothing in this document is intended to be, or
should be construed as, a profit forecast or estimate for any period.
Liability arising from anything in this document shall be governed by
English law, and neither the Company nor any of its affiliates, advisors
or representatives shall have any liability whatsoever (in negligence or
otherwise) for any loss howsoever arising from any use of this document
or its contents or otherwise arising in connection with this document.
Nothing in this document shall exclude any liability under applicable
laws that cannot be excluded in accordance with such laws.
Certain figures contained in this document, including financial
information, may have been subject to rounding adjustments and foreign
exchange conversions. Accordingly, in certain instances, the sum or
percentage change of the numbers contained in this document may not
conform exactly to the total figure given.
(END) Dow Jones Newswires
May 06, 2020 02:00 ET (06:00 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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