Co-operative Bank profit surges to £132.6m as CEO Slape confirms bank still looking at acquisition targets
The Co-operative Bank recorded a big increase in pretax profit in its final year results thanks to higher interest rates as CEO Nick Slape confirmed the bank was still scanning the market for acquisition targets. .
Across 2022 as a whole, pretax profit increased to £132.6m up from £31.1m last year. This was primarily a result of higher interest income, which increased 41 per cent on last year.
The bank’s net interest margin – the difference between what it pays out and receives in interest – widened to 166bps, up from 125bps last year.
Banks have seen their income boosted by the Bank of England’s attempt to stave off inflation with a succession of interest rate hikes. The base rate now stands at four per cent, the highest since the financial crisis.
However, CEO Nick Slape told Morning Wire there’s “a lot more going on” at the bank than higher interest rates.
For example, the bank launched two new savings products thanks to its IT simplification programme, with one more due for launch in Q1, which will complete the re-platforming of its savings books.
Slape said when this is completed, it will save the bank around £20m immediately before efficiency savings.
The results will do little to put off the bank’s plans to acquire rivals. Slape said the bank would continue to look for targets, saying they have a team set up to “scan the market”.
“We know what would be a good fit”, he said, “but there’s nothing out there at the moment”.
Slape said the bank could target a larger rival to “bulk up”, such as TSB, or a competitor with access to wholesale funding, which although more expensive at the moment due to higher interest rates, would diversify the bank’s funding stream.
“There’s more than one good fit”, Slape said.
The Co-operative Bank set aside £6.4m in impairments, higher than the £1.1m last year. The increase is a result of the deterioration in the bank’s economic forecasts.
Despite the economic turbulence, the Co-operative Bank said it has only seen a “low level of arrears.” CEO Nick Slape said there are “no signs at all” of stress in its mortgage lending.
Defaults in its mortgage lending are a “remote risk”, Slape said, and “we’re not seeing any signs of them”.
Looking ahead to 2023, the bank expects a net interest margin of 180bps, “reflecting additional base rate rises driving margin widening”. Many banks have issued very cautious guidance on net interest margin for 2023.
It expects a low asset quality ratio – which measures how many non-performing loans there are – as “arrears remain low and stable” despite the current macroeconomic environment.
Net Zero plans
The Co-operative Bank also announced new net zero targets today, saying it would reach net zero on scope 1 and 2 emissions by 2030, and scope 3 emissions by 2050 at the latest.
Scope 1 and 2 emissions include direct emissions by the company. Scope 3 emissions are not produced by the company itself but come from those that it’s indirectly responsible for in the value chain.
Scope 1 and 2 emissions at the Co-operative Bank account for less than one per cent of overall emissions. Its value chain makes up around 10 per cent of scope 3 emissions while mortgage lending makes up the rest at around 90 per cent.
“A true act of co-operation will be required between banks, business, governments and consumers to make the necessary changes. I believe that financial institutions are in a unique position to leverage their lending decisions to support a transition to a low carbon world,” Slape said.