The Clydesdale and Yorkshire Bank Group (CYBG) has reported its first statutory profit in five years with underlying profits up 39 per cent to £221 million in the 2016 year to September. The Glasgow-based bank, which was demerged from National Australia Bank in February, said net interest income rose 2.4 per cent to £806 million and operating income rose 2.6 per cent to £989 million. Mortgage lending rose 6.5 per cent in the year and small to medium-sized (SME) business lending rose for the first time in four years. Gross mortgage lending rose to £21,83 billion, with owner-occupied mortgage lending accounting for 60 per cent of new lending and despite “very strong” buy-to-let volumes in the second quarter ahead of Stamp Duty changes. The SME lending book rose 6.1 per cent to £6.35 billion with new lending up 15 per cent to £2.22 billion. Impairment losses on credit exposure was down 50 per cent to £39 million (2015: £78 million). The bank has booked a statutory pre-tax profit of £77 million for the year (2015: £285 million pre-tax loss), though a £241 million tax charge resulting from new tax legislation restricting the use of historical losses CYBG said the tax-asset write off resulting from the enactment of the Finance Bill 2016 reflects “the inherent uncertainty in the UK's approach to the taxation of banking groups”. The lender said to date it has seen “limited impact” from the UK's vote to leave the EU, with the mortgage pipeline “robust” and SME lending “currently higher than at the same time last year”. However low base interest rates, reduced further to 0.25 per cent by the Bank of England in August, “has created challenges and put downward pressure on margins”. CYBG said the Bank of England's Term Funding Scheme announced in August, to provide up to £100 billion in extra capital to banks to encourage lending, “should help to offset some of this pressure by providing low cost funding”. The bank has made no further provision to cover payment protection insurance claims, having added a further £450 million provision in the first half to take the total provision to £1.5 billion, of which CYBG has charged £44 million with the remainder being charged to National Australia Bank. CYBG said it reduced headcount by 650 in the year “to below 6,500”, including 500 from “managing vacancies and attrition” and 150 from a voluntary severance scheme for senior grade staff”. The bank said its underlying cost to income ratio “is still too high” at 74 per cent (2015: 75 per cent), though administrative expenses were reduced to £729 million, which CYBG said it four per cent lower than outlined in its initial public offering. CYBG plans to reduce its underlying cost base to below £630 million by the end of the 2019 year. Its cost reduction plans include “getting more for less” when procuring services from third parties and suppliers, where CYBG expects to deliver a “greater than 10 per cent” reduction in third-party spend of around £300 million. CYBG said these actions will create a “change in cost culture” which will deliver around 40 per cent of its targeted savings, and the cost of implementing the changes will be in the region of £200 million, with £54 million incurred in the 2016 year. The lender announced in September plans to close another 50 branches , taking the branch estate below 200, as it looks to make £100 million in savings to meet equity return targets a year earlier than planned. The bank plans to invest £350 million over the next two years on its digital platform and has now identified “22 key processes or customer journeys where we see great opportunity to simplify, introduce more automation and digitise”. Its new digital banking platform, B, which launched in May offering a current and savings account and a debit card, will launch a credit card in 2017 as well as a 'B for Business' proposition “to help small businesses manage their finances”. CYBG's revised performance targets, to be delivered by the end of the 2019 financial year, aim to achieve mid-single digit annual loan growth, reduce the cost to income ratio to between 55 per cent and 58 per cent (previously 60 per cent by FY 2020) and deliver double-digit returns on tangible equity by the end of the 2019 year (previously by FY 2020). The revised targets assume zero per cent base rates through to full year 2019, GDP growth of between one and two per cent, an unemployment rate of between five and six per cent and house price inflation of between 0.5 per cent and two per cent. Commenting on the maiden results, CYBG chief executive David Duffy said: “In our first year as a Plc, CYBG has delivered on our promises to our customers and shareholders, building strong foundations for our future growth and positive momentum going into 2017. “Our annual results show a strong financial performance, with underlying profit up 39 per cent and the first statutory profit before tax in five years through robust growth in mortgages, SME lending and deposits, supported by our ongoing cost reduction programme. “We are investing in our future, with an investment programme in the next two years of over £350 million in part to unlock the potential of CYBG’s digital platform which will drive improvements in our customer experience and distribution capabilities.” “As the only true full service, challenger bank of scale, we are perfectly placed to disrupt the status quo in the UK banking market.”
Clydesdale Bank and Yorkshire Bank Group ( CYBG ) - Full year statutory profit of £ ##50 m , up 2 % YoY , marking its first statutory profit in five years and following its demerger from former owner National Australia Bank in February .