Glasgow-based Clydesdale Bank reports “solid start” to financial year

CYBG, which is made up of Clydesdale and Yorkshire banks, said yesterday that it has traded in line with expectations in Q1.

In its first quarter trading ­update, chief executive David Duffy said yesterday the bank continued to expand assets ­prudently while ­focusing on sustainable profit margins and manage­ment of the portfolio of businesses.

The lender said that its net interest margin – the difference between what it charges on loans and pays on deposits – was flat at 2.22 per cent in the three months to end-December compared with the same period of 2015.

The stable year-on-year performance comes its despite August’s Bank of England rate cut.

However, the latest figure was slightly down on the previous quarter’s 2.26 per cent.

Shares in CYBG – demerged from its former Australian parent company onto the London stock market last year – fell 5 per cent to 269.7p on the news.

A statement from CYBG said: “As expected, asset yields came under pressure from the start of the period following the August 2016 base rate reduction, along with increased competition in retail lending markets,” the bank said in a first-quarter trading update.

It added: “We saw the benefits of deposit repricing begin to offset these pressures towards the end of the period, alongside other measures to reduce funding costs, including a modest drawdown on the Bank of England Term Funding Scheme in December.”

CYBG, which is also closing 39 Yorkshire branches, said it is on course to meet its target of saving between £690 million and £700m in underlying costs this year. The closures represent one-third of its branch network.

The Clydesdale owner reported continued growth in its mortgage book, with net new lending of £240m.

However, growth was slower compared with its first quarter last year. It said £574m of new loans and facilities were issued to small to medium-sized enterprises.

But it noted that a 12 per cent rise in new business drawdowns to £503m was offset by higher than expected redemptions by a small number of larger borrowers repaying facilities, mainly because of mergers and acquisitions or asset sales.

The self-styled “challenger bank” to Britain’s big five lenders said its deposit balances totalled £27.3 billion at end-December 2016, up 4.7 per cent on an annualised basis compared with 30 September 2016, driven by both business and personal accounts.

CYGB, which recently announced plans to close 79 UK branches, 40 of them in Scotland, with the loss of hundreds of jobs, said its mortgage book grew 4.4 per cent to £22.1bn in the latest trading quarter.

That was ahead of general mortgage market growth of 2.2 per cent for October and November based on Bank of England data. CYGB said £574m of its lending and facilities was to small and mediumsized businesses (SMES) in the first quarter.

However, it added that its core SME lending book shrank £40m (0.6 per cent).

CYBG chief executive David Duffy said: “Despite a competitive market, we continue to grow assets prudently while focusing on sustainable margins and portfolio management. Whilst there is some uncertainty created by Brexit, economic indicators in the UK have proved resilient since the referendum vote. To date we have not seen any negative impact on asset quality.”