OSB’s profit plunges due to falling interest rates
OneSavings Bank (OSB) recorded a hefty hit to profit for the first half of 2025 as lower interest rates took a chunk out of the group’s bottom line.
The London-listed firm posted a 20 per cent decline in profit before tax, which fell to £192.3m in the first half.
Net interest income (NII) fell five per cent to £337m whilst administrative expenses edged up four per cent to £131.4m.
The group’s net interest margin – a key indicator of a bank’s profitability from lending – shrank seven basis points to 2.3 per cent.
OSB said the downturn in profit was driven by “more costly spreads to the Sterling Overnight Index Average (SONIA),” which is the benchmark for the average overnight interest rate banks pay to borrow from other financial institutions.
The company said that its savings book was “recycled,” meaning when existing accounts matured it had to offer higher rates on new deposits to remain competitive. This increased its cost of funds and, as a result, narrowed the margin between the interest it earns on its loans and the interest it pays out on deposits.
UK banks have been forced to reassess their revenue streams after the Bank of England slashed rates to four per cent this month, which is down from a post-financial crisis high of 5.25 per cent just 12 months prior.
OSB is diversifying its loan book
The FTSE 250-listed lender last year flagged “increased competition in the subdued mortgage market” as the central bank began to cut rates.
To combat the changing environment, OSB has laid out plans to focus on specific sub-segments of the mortgage market – expanding beyond Buy-to-Let to more higher-yielding areas.
The group offloaded £1.25bn of Buy-to-Let loans in December 2024 to investors. But the sale weighed on net interest income.
Still, the bank’s loan book grew 1.2 per cent to £25.4bn despite the headwinds, driven by 10 per cent growth in new loans.
Andy Golding, OSB’s chief executive, said the group’s “transformation programme is on track”.
RBC equity analyst Benjamin Toms said: “At this stage in the new strategic plan, no news is good news, and boring is better, in our view.”
He added “the most important aspect of today’s results” was future guidance – which management reiterated. OSB expects “low single-digit” growth in its loan book and a net interest margin of 2.25 per cent.
The lender was listed by analysts as a likely target of a takeover deal in the next year as banking giants ramp up their efforts to consolidate the market.
OSB has already been caught in M&A speculation; the group merged with Charter Court Financial Services at the end of 2019.
The bank’s stock faced a bruising 2024, but it has rallied since the beginning of the year. The shares in OSB have jumped 37 per cent in 2025.