Record profits place TSB on course for £50m dividend but impairment charges rise on recession fears
TSB Bank proposed a £50m payout to its parent company in the first quarter of 2023 as its yearly pretax profit increased to a record level.
Pretax profit in the 2022 financial year rose to £183.5m from £157.5m in 2021, reflecting lending growth, higher interest rates and higher deposit margins.
This figure includes the costs of a £48.7m fine relating to IT issues after TSB and its parent company Banco Sabadell merged computer systems. Over 2 million customers were locked out of their accounts for weeks after the transfer.
TSB will pay a £50m dividend to Sabadell, subject to approval, which CFO Declan Hourican told investors“demonstrates the progress we have made in the last few years to turn the business back towards sustainable profitability”.
‘’This update shows that the disastrous IT failure which locked out millions of customers and risked damaging TSB’s brand is now firmly in the rear-view mirror,” Hargeaves Lansdown’s Susannah Streeter commented.
“Although the fine levied by the FCA and PRA for the debacle pushed the bank into a quarterly loss, over the year as a whole pre-tax profit hit a record £183.5 million. As inflation has surged and central banks have taken action to rein it in by hiking rates, TSB has benefited from rising net income margins,” she continued.
Net interest margin increased to 2.57% from 2.44% last year while customer deposits increased by £36.3bn reflecting strong growth in retail savings.
The bank’s CET1 ratio – the highest tier of capital – stands at 17.1 per cent.
Reflecting fears of an economic slowdown and an uptick in bad loans, credit impairment charges increased to £54.9m from £0.1m last year, when the bank had exceptionally low charges following Covid-related impairment releases.
However, despite the increase, TSB told investors that they are “not seeing significant change in arrears” in both secured and unsecured loans. The provision levels reflect “the outlook we are anticipating in the economy as opposed to what we are seeing in our actual arrears rate.”
“To stress again…in the case of both secured and unsecured (loans) they are below our projections”, CEO Robin Bulloch commented, saying consumers appear resilient “at this time”.
The results have raised the question of whether Sabadell might look to cash in on TSB after rumours emerged last September that it was mulling a sale.
However, Bulloch told investors “Sabadell has been crystal clear that they have no plans to sell TSB and in fact are looking at the results we are delivering with great pride.”
“Sabadell are very clear: they have no interest, whatsoever, in selling TSB simply because we are making a valuable contribution to their overall results,” Bulloch reiterated
TSB was sold to Banco Sabadell in 2015 by Britain’s largest mortgage lender, Lloyds Bank, for £1.7bn.