Yorkshire seeing weak demand for credit

The lender, which together with sister bank Clydesdale is owned by National Australia Bank, said demand for credit is weak as businesses and households pay down debt.

Despite this, it managed to maintain its book of gross loans and acceptances at £33bn, helped by strong growth in mortgages.

Yorkshire and Clydesdale have cut almost 400 jobs during the year to the end of September, about four per cent of their workforce, and said more cuts will follow.

“The story of 2012 (for the bank) is going to be the story of the external environment,” said David Thorburn, chief executive of Yorkshire and Clydesdale banks.

“I don’t expect the demand for business lending to increase; I don’t particularly expect the demand for mortgage lending or personal lending to increase.

“Consumer confidence has been quite shaken. I expect our bad debt experience to only improve modestly over the period.”

Yorkshire Bank, which reports together with Clydesdale, said underlying profits were up four per cent to £533m in the year to the end of September.

Its charge for bad and doubtful debts was down £51m at £296m, a 14.7 per cent fall on a year earlier, which the bank said was due to “prudent” lending and lower provisions for business loans.

However, the bank’s cumulative book of gross impaired loans stood at £858m at the end of September. This was up from £766m a year ago, but down from £867m at the end of March.

Once bad debt charges were taken into account, the bank reported pre-tax profits of £237m, up 44.5 per cent on a year earlier, “albeit from a low base”.

The number of full-time UK staff fell by about 380 to 8,351 during the year, a 4.3 per cent decrease. Yorkshire Bank employs about 2,000 staff in Yorkshire, slightly up on a year ago.

Mr Thorburn, who took over from long-standing chief executive Lynne Peacock in July, said: “That will carry on. There is no way around that. We’re in an environment where there’s not strong demand for borrowing products. Margins are tight.

“The only other moving part is our cost base. Unfortunately from time to time that does impact on employees.”

Operating expenses increased two per cent to £726m, which the bank said was an achievement given high inflation and regulatory costs. Its cost-to-income ratio edged down to 57.7 per cent from 58.2 per cent a year earlier.

The lender was recently downgraded by ratings agencies Moody’s and Fitch over doubts about NAB’s commitment, despite a senior executive insisting it is in no hurry to sell the brands.

However, Mr Thorburn said NAB continues to invest in its UK operations, and has injected capital through the downturn.

“We invest about £100m a year in IT,” he said.

“We will make a further £100m investment (this year). That’s a big amount for a bank the size of Yorkshire.”

Yorkshire Bank is currently upgrading its online banking offer, building a direct banking platform for retail customers. Initially, it will allow customers to apply for personal loans online using an automated system, before being expanded to include deposits and mortgages.

“It will extend the reach of the bank,” said Mr Thorburn. “There’s a younger generation of customers who like to bank over the internet, and (there are opportunities) where we do not have a branch network.”

Yorkshire Bank said despite “subdued” demand for credit, it has attracted a growing number of trading small and mid-sized businesses, while winding down commercial property loans.

It also advanced £2.7bn in mortgages over the year, a 5.6 per cent increase which significantly beat market growth of 0.3 per cent.

This helped the bank beat its pledge to extend £10bn of new lending between October 2009 and October 2011 – instead lending £12.2bn over the two years.

“We’ve not increased our risk appetite,” said Mr Thorburn. “All we’ve done is stay open for business.”

Loans three or more months in arrears fell to 3.12 per cent from 3.15 per cent a year ago. Net interest margin, a key measure of profitability, declined to 2.33 per cent from 2.34 per cent in 2010.

NAB’s overall group second half profits rose to a record high as bad debt charges fell and mortgages grew, although it warned global economic events were hurting consumer confidence.

Santander hit by regulations

SANTANDER UK said that new rules which force it to hold more cash to protect against future financial crises were behind a nine per cent fall in profits and warned the impact is likely to be felt until 2013.

The UK’s fifth-biggest bank said regulatory costs had increased by £253m as profits in the nine months to September slipped to £1.65bn.

Santander said “all banks in the UK were facing headwinds” and warned it expects lower interest rates and higher costs of borrowing to affect profits over the next two years.

The UK arm of the Spanish bank has 25 million customers and 1,400 branches after buying Abbey National, Alliance & Leicester and Bradford & Bingley’s branches.

The bank said net profits for the nine months fell to £659m from £1.28bn after a £538m provision for mis-selling payment protection insurance announced earlier in the year.