THE AUSTRALIAN owner of Yorkshire and Clydesdale banks said its UK banking operations have continued to make good progress, but the improving performance was overshadowed by the ongoing fallout from the mis-selling of toxic loans to small and medium-sized businesses (SMEs).
National Australia Bank said total UK conduct-related costs for the six months ending March 31 stood at £128m, including £115m reflecting increased provisions relating to interest rate hedging products and some tailored business loans.
Banks sold these products on the basis they would help protect smaller companies against the risk of rising interest rates, but when rates fell, they had to pay large bills, often running to tens of thousands of pounds.
Companies faced penalties to get out of the deals, which many said they had not been told about when they bought them.
David Thorburn, chief executive, told The Yorkshire Post: “It is clearly the case that some SMEs did not understand the nature of the product they were getting into. Where we find that is the case we are funding redress.”
He described the experience as “a matter of regret” and said “lessons have been learned”.
NAB said UK conduct-related costs for the same time last year were £37m.
Mr Thorburn said that “the end is in sight” for the issue with all UK banks going through the redress programme with customers in the current financial year.
“We are working very hard to learn the lessons of the past and put that behind us,” he added.
The banks said provisions for the mis-selling of payment protection insurance stood at £126m at the period end, with no additional provisions raised during the six months.
The mis-selling scandal aside, Yorkshire and Clydesdale banks put in a strong showing during the period.
The lenders more than doubled pre-tax cash earnings to £89m, reduced charges to pay for bad and doubtful debts by 40 per cent and achieved an 8.9 per cent increase in net mortgage lending.
Asked about the improving performance, Mr Thorburn said: “You cannot ignore the effect of the economic recovery.
“As confidence returns in the housing market and to business customers, the demand for mortgages and business loans is picking up well. That would be a big contribution to this.”
He also singled out the efforts of the two-year restructuring programme, which he said has put the bank on a better footing and contributed to a stronger capital position.
The £175m restructuring programme involved the loss of 1,400 jobs and the closure of banking centres in the south as the lenders retrenched to their Scottish and northern heartlands.
Mr Thorburn said the banks remain determined to make further progress to support customers, including the appointment of Debbie Crosbie as an executive director to lead the new “customer trust and confidence initiative”.
He said the work is “dedicated to ensuring fairness for customers in everything we do and underlines the strength of our customer commitment”.
The lenders are launching a new payments service to allow customers to pay beneficiaries via mobile phones this summer and later in the year will provide full mobile capability via the new Paym service.
At group level, NAB reported an 8.5 per cent rise in cash earnings as bad debt charges dropped.
David Ellis, a banking analyst at Morningstar, said: “The chronic underperformer, UK banking, turned in a much-improved performance but remains a drag on group returns.”
NAB planning for Scottish independence vote
National Australia Bank is making contingency plans for its UK operations in the event that the referendum on Scottish independence returns a ‘yes’ vote, chief executive Cameron Clyne told analysts.
The outgoing CEO said the lender is “keeping a close on the vote” in response to questions about the likely implications, according to David Ellis at Morningstar.
Clydesdale Bank is headquartered in Glasgow, while Yorkshire Bank is based in Leeds.
They employ more than 7,100 people, including 4,000 in Scotland and 1,000 in Yorkshire.
David Thorburn, chief executive of the UK operations, told The Yorkshire Post: “We do have to think through what we might have to do in certain circumstances here.
“As a company we have decided we will stay neutral on this because it is a decision for the Scottish people.”
He said preparations are limited by the uncertainty over issues like currency and regulation in the event that the Scots vote for independence.
“We are just getting on with the day job,” said Mr Thorburn. “It is not distracting us at all.”
The future of Yorkshire and Clydesdale banks has been the subject of steady speculation.
This has been heightened in recent years with Australian investors blaming the UK operations for being a drag on the performance of the parent company.
In spite of favourable London stock market conditions, Mr Thorburn said the company has “no plans at all” to float and said speculative questions about a private equity buyout or tie-up with another UK lender are for the Australian owners rather than the UK managers.
“We are focusing on doing our job here and trying to make Yorkshire Bank as competitive as possible,” he said.
Mr Clyne, who stands down as chief executive this summer, said NAB achieved a good result for the six months ending March 31 with progress on a number of fronts.
He said: “The economic environment continued to improve during the period. This is evident in the UK where confidence and economic growth have risen again and become more broad based.”
NAB said its quarantined book of UK commercial property loans continued to shrink with the outstanding balance now at £2.9bn.
The porfolio saw a slowdown in the emergence of new impaired loans, recoveries on existing impaired exposures and lower bad and doubtful debts.