Yorkshire Bank to become more competitive

In response, we are making three main changes over the next three years.

First, we will simplify our business model and we’ll reduce our cost base to enable us to be more competitive and better able to respond to the challenges of other banks in the UK.

Second, we will strengthen our balance sheet by transferring the vast majority of our commercial real estate book to our parent National Australia Bank with the intention of no longer being active lenders in the commercial property market.

Last, and most importantly, we are going to reduce our risk appetite and focus on our strong market position in the North of England, particularly in Yorkshire and Scotland, the heartland area of the Clydesdale Bank.

I don’t think I need to tell anyone about the state of the economy over the last three years.

We haven’t been able to defy gravity and it has impacted our bank as businesses and personal customers struggle with the conditions.

In particular the commercial property market has been challenging as it has not recovered as rapidly as had been predicted.

Alongside the challenging economic conditions the regulatory environment has changed beyond all recognition as the regulator moves to make changes following the global financial crisis.

These two things meant we needed to take a good hard look at what, how and where we operate our business.

I am not looking for sympathy. As an industry, banking has, in many ways, created a rod for its own back. Many have recognised that Yorkshire Bank followed a different tack, with a model much closer to the building societies, and we have seen the benefit of this. However, we also have to accept that, for a significant part of the population, we are a “bank” just like the others.

But the fact is the last three years has seen financial markets slow, almost to a standstill at times; making funding scarce and more expensive and the requirement for us to hold more capital has also increased our costs significantly.

At the same time, the contraction in the economy has seen customer demand for financial products change – people are paying down debt and saving less.

And defaults are up, so you have to price that risk into your model and raise your benchmark for creditworthiness to manage that, which does reduce the numbers to whom it can be made available to.

This is the “new normal”; a market with less available, more expensive credit. Which, when you want to lend more presents a difficult balancing act.

We have to make sure that we can deliver that lending to the right businesses at the right cost, an acceptable risk to us and the right price for customers.

I think it is worth noting the role of our parent, NAB. Much has been written about Yorkshire and Clydesdale Banks being sold for pretty much for all the time I have been with the group.

I am not going to comment on specifics, but clearly that kind of speculation is more helpful to the so-called buyers than anyone else, particularly when they are not making an actual bid.

The truth is, NAB has an asset that it has invested heavily in and supported when it has needed to, and, like anyone would, it expects a return on that investment. The fact that we are seeing the group take a more active role has to be positive for the long-term health of the bank – it wants and expects to see success.

In a lot of ways, our future lies in our past; a bank aimed at helping people help themselves and their businesses. A bank that understands its customers and can provide useful, valued services throughout its life.

Our future lies at the centre of the business community, particularly in our regions. We are changing, but in a way I believe is for the best for the bank and for Yorkshire as a whole.

This is an edited version of John Hooper’s speech to the Yorkshire Post Business Club