YORKSHIRE and Clydesdale banks have increased by £38m the amount of money set aside to compensate the victims of mis-selling, with small and medium-sized businesses expected to be the main beneficiaries.
National Australia Bank’s UK business disclosed yesterday that provision for customer redress rose to £83m in the six months ending March 31, up from £45m the same time last year.
The largest part of the provision relates to interest rate hedging, a spokesman said. The provision is separate to the £51m set aside against mis-sold payment protection insurance (PPI) during the period.
Yorkshire and Clydesdale are among the dozen or so lenders taking part in a review into the mis-selling of interest-rate hedging products to SMEs.
These were sold to protect against a rise in the cost of borrowing money during the boom years but left many holders dangerously exposed when interest rates fell to record lows.
In an interview with the Yorkshire Post, David Thorburn, chief executive of the UK business, said the banking industry can learn many lessons, “some large, some small, but all important”, from the mis-selling of PPI and interest rate hedging products.
Mr Thorburn said: “I have spent a lot of time reflecting on this and we are acting now to prevent a recurrence in the future.”
He added that organisations must have the right culture, which has to come from the top, staff must be clear that they have the “right outcomes” for customers when they sell products and that sales incentives must have “appropriate” designs.
Meanwhile, NAB said the turnaround of Yorkshire Bank is “proceeding ahead of plan” following its return to profit.
Cameron Clyne, chief executive, said the UK business has a stronger and smaller balance sheet.
“The UK is a business we’re working through. It’s got its challenges, but underneath that, we feel it’s actually a very, very strongly performing franchise, one that we’ve continued to grow over the past three or four years. So I think it’s just a reminder to people that – well, clearly, we have a UK bank, and that’s a clear point of difference to our competitors.”
The tone of his comments has improved since March when he told analysts the UK business is “clearly a problem asset”.
Australian investors are keen for NAB to dispose of Yorkshire and Clydesdale, which they see as a drag on its overall performance.
OptionsXpress analyst Ben Le Brun said: “We certainly want a bit more clarity around the long-term plan for NAB on the UK assets. The market would love to see an exit strategy.”
But Mr Thorburn would not comment on the issue, saying he did not want to “fuel the fire”.
Analysts have speculated that the options could include a straight sale – Santander has been mooted as a potential bidder – or an initial public offering, which might offer shareholders a better return.
In interim results, the UK business reported pre-tax cash earnings of £54m in the six months to March 31, reversing the £38m loss in the same period last year.
The improved performance was mainly due to the transfer of a £5.6bn commercial real estate portfolio to the Australian parent, which insulated Yorkshire and Clydesdale against more losses from troublesome property lending.
The UK business also reported a significant improvement in its bad and doubtful debt charge, which fell £191m to £91m, again due to the transfer of the portfolio.
But business lending fell by £7.4bn, partly as a result of the portfolio transfer and as loans fell to small firms.
Mr Thorburn said the decline in SME lending was in line with wider industry trends. He added that the decline also reflects the impact of the bank’s ongoing restructuring programme, which has so far seen the loss of around 1,000 jobs.
“We made a lot of changes very quickly. That distracted us for a period,” he said.
Mr Thorburn added: “There is a mismatch between SMEs asking for finance and what banks in general are willing and able to do.”
He said the UK business has no shortage of funds and the tier one capital ratio – a key measure of financial strength – improved significantly to 11.8 per cent.
He added: “It’s really important to the recovery of the business that we do more SME lending. We just need to find the right deals.”
But he warned that the UK economy faces another one or two “challenging and subdued” years. And he would not rule out future job losses on top of the 1,400 already announced.
“Nothing is planned at present but we will be conditioned by the environment around us going forward,” said Mr Thorburn.