Profitable Yorkshire BS well-placed for growth

The UK’s second-biggest building society, which is in the process of merging with rival Norwich and Peterborough (N&P), also reported a drop in its bad debt rate and a boost to its financial strength.

With regulators looking closely at lenders and deposit takers’ ability to withstand economic shocks, YBS said its core tier one capital ratio makes it among the strongest of UK financial institutions.

This key measure of financial strength increased to 12.7 per cent from 12.4 per cent six months earlier.

The Yorkshire’s outgoing chief executive Iain Cornish insisted the building society strives for “profit optimisation, rather than profit maximisation”.

Despite this, pre-tax profits rose 27 per cent to £73.1m during the first six months of the year, from £57.5m a year earlier.

Operating profits, a purer measure of earnings, surged almost 70 per cent to £90.2m from £53.2m a year earlier.

“They are a good, solid, all-round set of results,” said YBS’s corporate development director Andy Caton.

“If you look at the overall market, it is going sideways. There’s a little bit of growth in the retail deposits market but that’s constrained by the cuts in real standards of living.

“Even if people want to save more, which they do, people’s incomes are pretty flat, if not declining, and you’ve got increased prices and domestic bills etc. There’s a lot of drag in the retail funding side of things and the housing market statistics speak for themselves.”

Figures from trade body the Council of Mortgage Lenders (CML) earlier this month showed gross mortgage lending improved in June, rising to £12.6bn from £10.8bn in May. But this was down 2.9 per cent on the £13bn of lending in June 2010 remains muted compared with long-term norms.

The Yorkshire said its gross mortgage lending increased to £1.5bn during the six months from £718m a year earlier. One in four of its borrowers were first-time buyers, it added. This helped to keep gross assets steady at £30bn.

However, increasing competition meant members’ savings balances dropped from £21.4bn at the end of 2010 to £21bn at the end of June. Mortgage balances also dipped slightly to £23.1bn from £23.4bn six months earlier.

YBS earlier this week revealed plans buy Egg internet bank’s mortgage and savings business for an undisclosed sum, thought to be less than £20m.

This will give the lender another £2.5bn of savings and prime mortgages worth £430m – adding about 550,000 customers. “It will strengthen even further the funding position of the group and that increases our capacity to lend,” said Mr Cornish at the time.

The Yorkshire also reported progress on bad debts, with loans more than three months in arrears down to 1.8 per cent of its book from 1.84 per cent six months earlier. This beat the CML’s market rate of 2.09 per cent for the first quarter.

The CML expects to see “moderately higher” arrears this year and next, but Mr Caton said YBS could deal with tougher conditions for borrowers.

“The quality of the lending that we have been writing over quite a while is demonstrably of high quality with very low incidents of arrears activity,” he said.

Bad debt writedowns dropped to £15m from £19m a year ago.

The lender added it was monitoring the Eurozone debt crisis and has £174m in Irish banks, but these loans are not impaired.

It has also made annualised savings of £27m from its merger with Chelsea, putting it on course to meet its £35m target.

The Yorkshire added it opened nine agencies during the first half to give it 90 across the country, in addition to 178 branches.

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