Yorkshire enjoying bigger share of the SME market

After enduring a tough recession, the bank said it is now attracting a growing number of small and mid-sized corporate customers looking for an alternative to the big UK clearing banks.

The financial crisis also saw the withdrawal of many Irish and European rivals, reducing choice in what was once a crowded SME banking sector, said chief operating officer David Thorburn.

"You've got the big banks or us," said Mr Thorburn. "On the business side we have upscaled a lot over the last five years. In Yorkshire and in Scotland there's no question, we are taking market share. "

He was speaking as the bank, which reports results together with Clydesdale Bank, made a strong rebound from the recession, growing pre-tax profits by 53 per cent to 164m in the year to the end of September.

The bank also saw an 11 per cent increase in retail deposits to 23.1bn, more than double the industry average of 4.8 per cent.

Lending for mortgages and businesses grew by 4.2 per cent and 2.8 per cent respectively.

Its market share now stands at about three per cent in the SME sector, and it has a two per cent share of deposits.

"We have a very safe, traditional business model which has really focused on supporting customers," said chief executive Lynne Peacock.

"Customers remember that we were supporting them in Yorkshire and Scotland when times were tough."

Yorkshire Bank, owned by National Australia Bank, is also doing larger deals, and was part of a club of banks which recently lent engineering and vacuum cleaner company Dyson James Group 270m to expand.

The bank operates from 72 business banking centres, of which 32 are Yorkshire Bank branded. It also has 187 branches across the country and employs 1,900 staff in Yorkshire.

Charges for bad and doubtful debts dropped by 18 per cent or 74m over the year. Ms Peacock said the bank sees a slow recovery from the recession.

"We are veering away from a double-dip recession but everybody is cautious. We are cautious and our customers are cautious."

Yorkshire Bank extended 4.7bn in new lending over the year, of which 2.7bn was business lending and 1.7bn was mortgages. Its net interest margin, the difference between rates on loans and deposits, rose to 2.34 per cent from 2.25 per cent a year earlier.

The bank has been the subject of deal speculation in recent months after it failed to win an auction for 318 RBS branches. It said its balance sheet and capital strength give it a strong platform to grow.

"Our number one priority is and always has been organic growth," said Ms Peacock. "If something was there that really helped us advance our strategy we would look at it. But it really does have to tick all the boxes on creating shareholder value."

NAB chief executive Cameron Clyne said: "UK Banking has performed well in a tough environment while supporting customers and improving its balance sheet."

In July the bank admitted a blunder where around 18,000 mortgage customers had been unwittingly paying less than they needed to. Customers were asked to pay the correct monthly amount, plus an additional monthly sum to meet the shortfall.

Ms Peacock said there were "no significant" issues with customers struggling to meet increased payments.

"At the end of the day it's our mistake and we're very sorry that it happened, but to be fair to all our customers we need to charge the payment that was actually due, and I think the vast majority of our customers understand that," she said.

NAB warns over the pressure on margins

Yorkshire Bank parent National Australia Bank reported a record half-year cash profit on improving bad debt provisions, but joined rivals in warning that rising funding costs are squeezing margins.

Australia's top lender said its second-half cash profit jumped 32 per cent to A$2.39bn (1.47bn), beating analysts' expectation of A$2.3bn.

Its full-year cash earnings were up 19.3 per cent to A$4.6bn.

Group chief executive Cameron Clyne said the focus in 2011 will be mostly organic growth, but the bank would look for small US and asset management acquisition targets.

Bad debt charges fell 41 per cent to A$2.3bn over the year and Tier 1 capital, a measure of the bank's ability to absorb losses, was at 8.91 per cent down 18 basis points from the six months to March.

Mr Clyne said that the bank's corporate loan book was stable but its home loan portfolio had grown at above the sector for the first time in five years.