Secure Trust Bank warns on profits amid vehicle finance difficulties

(Sharecast News) - Secure Trust Bank reported continued growth in new business volumes and net lending in an update on Friday, although challenges in its vehicle finance segment led to a downgrade in its underlying profit expectations. The London-listed bank's net loan book grew 0.5% over the third quarter, advancing its target of £4bn in lending, while customer deposits rose by 3.2% to support lending objectives.

Commercial finance net lending increased by 3.1% in the quarter, while vehicle finance saw a 7.5% rise, surpassing £0.5bn for the first time.

However, retail and real estate finance lending was marginally down.

Project Fusion's organisational changes remained on track, with expected cost savings of £5m by the end of the year and an additional £3m in 2025, delivering a projected £8m in total annualised savings.

The group said its vehicle finance business was impacted by a temporary pause in collections following the FCA's borrowers in financial difficulty (BIFD) review, leading to a higher default rate.

Although collections had resumed, the excess defaulted balances were likely to affect results into 2025.

As a result, the board said it now anticipated underlying profit before tax for the 2024 financial year to fall £10m to £15m below market expectations, attributed specifically to vehicle finance, while other divisions met expectations.

Amid regulatory developments, STB also temporarily paused new consumer lending in vehicle finance to assess the implications of a recent Court of Appeal ruling, but had since resumed new business.

"The group has continued to grow net lending in the quarter, albeit at a lower rate in what remained a challenging economic environment," said chief executive officer David McCreadie.

"We continued to manage lending growth prudently within our prudent risk management parameters.

"The implementation of the organisation design changes required to complete delivery of the initial £5m of Project Fusion cost savings by the end of this year continued."

McCreadie said that as a result, the firm was on track to deliver an additional £3m of cost savings in 2025.

"We are disappointed that it will take longer than expected to recover value from the excess level of defaulted vehicle finance balances, and the recent Court of Appeal decisions have added additional uncertainty on the benefits to be realised in 2024.

"Notwithstanding the near-term impacts of the excess defaults in vehicle finance, we have seen arrears in vehicle finance fall to the lowest level since 2021, have continued to grow total net lending, continued to optimise our cost base, made good progress on early repayments of TFSME funding, and see continued growth opportunities ahead of us."

At 0928 BST, shares in Secure Trust Bank were down 11.66% at 500p.

Reporting by Josh White for Sharecast.com.