Tesco Bank profits up 12 per cent

The lender, which employs most of its 4,000-strong workforce in Edinburgh and Glasgow, said customer lending rose 10.6 per cent in the year to £8.5 billion, “underpinned by double digit growth in mortgages and personal loans.”

Pre-tax profit at Tesco Bank rose 11.7 per cent year-on-year in the twelve months to February 29 to £187.9m for the year to February 29 on the back of strong mortgage and loan growth.

Gross lending rose £8.7bn from £7.86bn a year earlier.

Tesco Bank now serves 7.6m accounts, up from 7.4m in the preceding year.

Customer deposits rose 7 per cent to £7.4bn, indicating there is some demand for an alternative to the major lenders which until a few years ago dominated the UK high street.

Those results are wrapped into the overall results for Tesco, but are also broken out separately given the scale and nature of the business of parent group Tesco Plc.

Statutory profit figures are set against a pre-tax profit of £168.2 million reported for the 2015 year, which had included a £27 million provision relating to the “historic sale of certain cardholder protection products to credit card customers”.

Tax contributions totalled £2.2 million the 2016 year to February, down from £39 million in 2015, which was “largely as a result of group relief being made available to the Company from the Tesco Plc tax group, reducing the tax charge in respect of 2015 by £35.4 million”.

As a result of the tax relief, the profit attributable to parent group Tesco Plc was £185.7 million (2015: £129.2 million).

Tesco Bank notes on an underlying basis - excluding £1 million of restructuring costs (2015: £8.1 million), customer redress of £nil (2015: £27 million) and losses on financial instruments, movements on derivatives and hedge accounting of £8.1 million (2015: £18.6m) – annual profits were down 11.2 per cent to £197 million (2015: £221.9 million).

The group notes customer numbers in the banking business rose 4.6 per cent across primary banking products - credit cards, personal loans, mortgages, personal current accounts and savings – to 5.7 million in what was “an extremely competitive trading environment”.

Tesco Bank said the introduction of a 95 per cent loan-to-value (LTV) mortgage product and an expanded range of loan sizes “further widens the options available to customers”.

Mortgage balances rose 39.5 per cent in the year to reach £1,66 billion (2015: £1,19 billion), an while credit card balances increased by 0.7 per cent and personal loans increased by 12 per cent.

The bank said the overall LTV of its mortgage portfolio is 50.8 per cent.

Tesco Bank notes impairment charges grew by 28.7 per cent to £67.8 million (2015: £52.7m), which it said “reflects growth in lending activity in recent years together with a slight increase in the bad debt: asset ratio to 0.8 per cent from 0.7 per cent a year earlier”.

Income from the insurance division was down 5.1 per cent to £124.5 million (2015: £131.2 million), “reflecting continued competitive pressure, particularly in the Motor Insurance market”.