National Australia Bank Group, owner of the Clydesdale and Yorkshire Banks, today released full year results for its UK Region’s operations for the 12 months to 30 September 2009. Unless otherwise stated, figures are comparisons with the 12 months to 30 September 2008. Highlights are:
• Underlying profit up 2% to £529 million
• £108 million pre-tax profit (down from £343m)
• Retail deposits and longer term funding cover 101% of lending
• Strong liquidity with liquid assets of £8.7 billion – three-fold increase in two years
• £10 billion of new business and mortgage lending pledged over next two years
• £4.1 billion of new business and mortgage lending in the past 12 months
• Average gross loans and acceptances increase 7% to £33.5 billion
• Average retail deposit volumes up 14% to £20.8 billion: almost four times industry average
• Provisions coverage ratio strengthens to 1.36%
• Mortgage balances three months in arrears less than a third of UK industry average
• Cost income ratio improves to 54.2% in the second half (from 57.7% at March 2009)
• Costs reduce by £48 million (7%)
Lynne Peacock, Chief Executive, said: “We’ve kept our business safe, secure and in the best possible shape by maintaining a strong capital position and supporting our customers in these challenging times. We’re now moving up a gear.
“Today we are pledging £10 billion of new lending to support business and mortgage customers over the next two years. In achieving this, we will maintain our prudent credit and asset quality controls, just as we have in over £4 billion of new lending in the past year. Our pledge of additional funding is a considerable commitment for a business of our size. It will help to ensure customers continue to have real choice in a consolidating market and are supported when they need it most.
“We will continue to avoid the excesses of the sector and will maintain our careful strategic approach. Independent of Government capital support, we remain profitable, well capitalised and with clear underlying strength. The fundamentals of our business are strong and we are well positioned to capitalise on future growth opportunities.”
Clydesdale and Yorkshire Banks have continued to deliver a strong and profitable performance in exceptionally poor market conditions. Pre-tax profits of £108 million were made in the year (compared to £343m in the year to September 2008). Underlying profit before tax was £529 million, up 2% (from £518m).
In a twelve month period which has seen the removal of several leading independent banking names from the high street and impairment charges totalling £67 billion reported by the leading UK banks, Clydesdale and Yorkshire Banks have reinforced their reputations as strong conventional banks with sound management.
In order to build for the future, capital has been protected while the underlying business momentum has been maintained. The clear priorities of the management team continue to be to support customers and keep the Banks strong, safe and secure by further strengthening the balance sheet. This approach has ensured the Banks have continued to outperform peers
across a number of key measures.
A consistently prudent and disciplined approach to liquidity and funding has been maintained since the management team outlined its current strategy back in 2005. At 30 September 2009, Clydesdale Bank held a portfolio of liquid assets totalling £8.7 billion – over three times the level held prior to the market disruption.
Reflecting the continued double-digit growth (14%) in customer deposits and increased longer term wholesale funding, retail deposits and longer term funding cover 101% of lending – a very strong position to be in.
While the business maintains a conservative risk position, capital ratios were further enhanced during the period. As previously reported, the Group invested £700 million of additional capital in December 2008, strengthening an already robust capital base. At 30 September 2009, the Tier I capital ratio was 8.2%.
Investment continued on systems and processes with total cash spend of £87 million in the year, comparable with the prior corresponding period (£89 million). Investment was directed into three broad categories – efficiency and simplification, compliance and revenue generation.
Open for business throughout the market turmoil, a clear and enduring commitment of Clydesdale and Yorkshire Banks is to support customers in this challenging environment.
During a period in which lenders have been criticised for low lending volumes, £4.1 billion of new lending was advanced in the year – including new business lending of £2 billion and new mortgage lending of £1.8 billion.
Average gross loans and acceptances increased by £2.1 billion (7%) to £33.5 billion. Business lending was up almost 10% and mortgage lending by over 4%.
In July 2009, the banks pledged £1 billion of new lending would be made available. This was advanced to customers in just 3 months.
Clydesdale and Yorkshire Banks have now pledged to make £10 billion of new lending available to support business and mortgage customers over the next two years. This will be achieved while maintaining prudent credit and asset quality controls. Given the relative market size of Clydesdale and Yorkshire Banks, this major financial commitment is a clear signal of the Banks’ commitment to playing its part in helping to get the UK moving again.
Innovative and attractive products backed by the strength and security of its brands have also continued to attract strong deposit in-flows. An extra £2.6 billion of deposits (up 14% to £20.8 billion) was attracted in the period – almost four times the UK industry average.
The strength of the brands is also evident in the net increase of over 50,000 customers (up 2%) in the year which was achieved as a result of continued retention and increased acquisition rates.
Relative to peers, customer satisfaction has continued to strengthen and the Banks’ reputation has also continued to rate highly among key external stakeholders.
During the boom years, Clydesdale and Yorkshire Banks steadfastly refused to change its lending policies. Taking a very conservative view of risk and lending on the basis of affordability, the Banks did not offer sub-prime or self-certified borrowing.
This prudent approach has helped the Banks to record one of the lowest repossession rates in the industry – just 84 in the 12 months since September 2008 compared to over 24,000 repossessions for the UK banking industry in the first six months of 2009.
For customers who have faced financial difficulties, Clydesdale and Yorkshire Banks have continued to build on their range of initiatives to support business and personal customers. Pro-active assistance provided by the Customer Support Unit, for example, has helped hundreds of retail customers in financial difficulty keep their homes. For small and mid corporate businesses facing financial difficulty, dedicated support is provided by the Business Recovery Unit. This ‘intensive care’ unit works to help businesses back to full health.
Clydesdale and Yorkshire Banks continue to take a prudent and disciplined approach to managing risk.
While reflecting the impact of the current external operating environment, asset quality remains robust. Driven by the economic conditions, increased bad and doubtful debt levels continue to compare favourably with industry averages and have been mitigated by the relationship-based model and considerable proactive management of asset impairment throughout the year.
As a prudent response to the continued market fragility, the bad and doubtful debt coverage ratio was strengthened to 1.36% (from 1.27% as at 31 March 2009). This, coupled with the significant deterioration in the economic environment, has resulted in an increased bad and doubtful debt charge of £246 million (to £421m). Relative to peers, performance remains strong.
Mortgage balances 90 days past due as a percentage of total mortgages are less than a third of the UK industry average (0.80% at 30 September 2009 compared to 2.43% for the industry as at 30 June 2009). Gross Impaired Assets as a percentage of Gross Loans and Acceptances at 1.75% compares favourably with UK peers.
Excellent cost control and ongoing business efficiency improvements delivered a £48 million (7%) improvement in the year – particularly impressive given the continued strategic investments. This strong and disciplined cost control also helped the cost income ratio improve to 54.2% in the half (from 57.7% at 31 March 2009) and 55.8% in the year (compared to 57.9%) – a significant achievement in the current market environment.
The business has undergone a significant transformation over the past five years and is in good shape. A consistent strategic management approach, coupled with the creditable level-headed approach of its employees at a time when others were distracted, has ensured the business is well placed to take advantage of future growth opportunities.
Adding an Ayrshire perspective, Clydesdale Bank Financial Solutions Centre managing partner Willie Mackie commented: “We are looking to expand our Commercial, Agricultural and Private Banking businesses in Ayrshire as part of the Bank's wider pledge of £10 billion to support business and mortgage lending over the next 2 years.
“We remain well positioned within the local marketplace to capitalise on future growth opportunities.”
Financial Solutions Centre
43 Alloway Street
Ayr KA7 1SP