High street lender TSB today warned that profits will come under pressure as rock bottom interest rates and soaring IT costs are set to weigh on the group.
The bank – spun out from Lloyds Banking Group three years ago and then taken over by Spanish rival Banco de Sabadell last year – saw profits more than double in the first half of 2016, but said the performance was unlikely to be repeated in 2017 as it faces a tougher year.
Lenders and challenger banks in particular are set to be hit hard by expected interest rate cuts as the Bank of England moves to shore up the economy after the Brexit vote, as this will impact already under-pressure profit margins.
TSB is also facing a £125 million hike to costs for IT systems next year, which it must pay former owner Lloyds.
The lender posted a 144.8 per cent surge in underlying profits on a management basis to £107.7m for the six months to the end of June.
On a bottom line basis, pre-tax profits jumped to £125.4m, up from £23.2m a year earlier.
But the group said: “The expectation of lower for longer interest rates and the contractual increase in IT platform costs in 2017 will have a bearing on the financial performance in future periods.”
TSB added that it saw a rise in mortgage appointments being cancelled in the immediate days after the Brexit vote, but said this was a “blip” and plans to continue to grow its lending book despite uncertainty caused by the referendum decision.
It saw total lending jump 29 per cent year-on-year to £27.9 billion in the first half, boosted by the addition of 27,000 former Northern Rock mortgages and loans. It has created a new brand called Whistletree to manage Northern Rock mortgage accounts.
TSB also saw customer deposits rise 13 per cent to £28.1bn in the half-year, while it said it attracted more than 1,250 new customers on average every day.
It added that 7 per cent of customers opening a new bank account or switching banks chose TSB in the first half of 2016.
Chief executive Paul Pester said: “Looking forward, our mission remains unchanged. In an uncertain world, TSB’s solid foundations – plus the additional firepower provided by Sabadell – will support our responsible growth strategy.”