| Scheduled Trading Update | |
| 24 May 2023 |
Embargoed for release until 7.00 am on 24 May 2023.
Close Brothers Group plc (“the group” or “Close Brothers”) today issues its scheduled trading update relating to the third quarter of its 2023 financial year. All statements in this release relate to the period from 1 February 2023 to 30 April 2023 (“the quarter”) unless otherwise indicated.
Adrian Sainsbury, Chief Executive Officer
“We performed well in the third quarter, with loan book growth accelerating, a strong net interest margin and stable credit performance in Banking. The Asset Management division delivered increased net inflows, although trading activity remained subdued in Winterflood.
We are seeing good demand in our Banking business and the consistent application of our model, combined with our strong financial position, enables us to continue supporting our customers and clients. Following a difficult first half, we are well placed to make the most of opportunities in the current environment.”
Divisional performance
In Banking, the loan book increased 2.0% in the quarter to £9.2 billion1, corresponding to year-to-date growth of 1.3% (3.9% excluding Novitas and the Irish Motor Finance business). This was driven primarily by continued strong new business volumes in Commercial, as well as increased drawdowns and a slowdown in repayments in Property Finance. The Retail book declined primarily as the run-off of the Irish Motor Finance business more than offset a stable UK Motor loan book.
The annualised year-to-date net interest margin remained strong at 7.8% (7.6% excluding Novitas) (FY 2022: 7.8%, 7.5% excluding Novitas), reflecting both pricing discipline on new lending and actions taken to optimise the group’s liability mix and funding costs in a rising rate environment.
While we continued to see pressure from the current inflationary environment, we remain focused on cost discipline and efficiency.
The annualised year-to-date bad debt ratio was 2.6% (H1 2023: 3.6%) reflecting the significant provisions taken against Novitas in the first half of the 2023 financial year. As announced previously, we believe these provisions adequately reflect the remaining risk of credit losses for the Novitas loan book.
Excluding Novitas, the annualised year-to-date bad debt ratio was 0.9% (H1 2023: 1.1%), reflecting a broadly stable credit and arrears performance in the quarter2. We continue to monitor closely the evolving impacts of rising inflation and cost of living on our customers and remain confident in the quality of our loan book, which is predominantly secured, prudently underwritten, diverse, and supported by the deep expertise of our people.
Close Brothers Asset Management delivered strong year-to-date annualised net inflows of 9% (H1 2023: 6%), notwithstanding market uncertainty, with a significant contribution from new hires. We continue to invest in our hiring strategy and have a strong pipeline of new business. Managed assets increased to £16.1 billion (31 January 2023: £15.7 billion) and total client assets increased to £17.0 billion (31 January 2023: £16.9 billion).
The cyclical trends reported in the first half have continued to impact Winterflood’s performance, with retail investor appetite remaining subdued. Nevertheless, the team’s experience and focus on managing risk resulted in no loss days in the quarter. Winterflood has a long track record of trading profitably in a range of market conditions and remains well positioned to take advantage when investor confidence recovers.
Strong capital, funding and liquidity positions
We maintained our strong balance sheet and the prudent management of our financial resources. Our Common Equity Tier 1 (“CET1”) ratio was 14.0% at 30 April 2023 (31 January 2023: 14.0%), significantly above the applicable minimum regulatory requirement3. Our conservative approach to funding is based on the principle of “borrow long, lend short”, with the average maturity of funding allocated to the loan book exceeding the average loan book maturity by four months (up from two months at 31 January 2023). Our diverse funding base was stable at £11.9 billion and we grew customer deposits to £7.4 billion in the quarter, reflecting the strength of our Savings proposition. Retail deposits make up approximately half of our deposit base and are predominantly term or notice accounts, with the majority protected by the Financial Services Compensation Scheme4. We maintained our prudent liquidity position, with our liquidity coverage ratio substantially above regulatory requirements at 1,067% (12-month average to 30 April 2023). Our credit ratings remained strong, reflecting the group’s financial resources and consistent risk appetite5.
Outlook
Although we remain mindful of the impact of rising inflation and interest rates on our customers and wider financial market conditions, our proven model and financial strength mean we are well placed to make the most of opportunities over the remainder of the financial year.
As outlined at the Half Year 2023 results, we are committed to resuming our track record of earnings growth and returns by focusing on disciplined growth, cost efficiency and capital optimisation.