Close Brothers Group, a specialist UK lender to small and medium-sized companies and provider of asset and leasing finance, reported that its banking division loan book fell 2.3 % to £7.48bn for the 11 months to the end of June.
In a scheduled trading update, the bank said the change reflects lower new business volumes amid the effects of coronavirus during March, April, May and June 2020.
In a press release, it said: “… although we have seen early signs of an increase in client activity in June following the easing of lockdown restrictions, including the re-opening of motor dealerships and construction sites, as well as good demand for our CBILS offering particularly in the asset finance businesses.”
Banking fee income also fell during Q2 when the bank granted huge numbers of client forbearance requests, following an industry-wide petition by the City regulator.
The amount the bank earned in interest on loans compared to the amount it paid out in interest on deposits – its annualised net interest margin – was 7.6% (down from 7.9% in 2019).
Close Brothers’ banking division was also hit by higher bad debt charges – loan provisioning – resulting in a year-to-date charge of £167m at the end of June. It posted an annualised bad debt ratio of 2.3%, up from 0.6% last year.
In a statement, it said: “Credit provisions continue to reflect the ongoing uncertainty in the external environment and the forward-looking recognition of impairment charges under IFRS 9.
“We have recognised a further £43m of impairment since the third quarter, reflecting the evolution of the allocation of the loan book between stages as well as the incorporation of updated macroeconomic scenarios.”
The bank added: “While the impact of Covid-19 has led to higher credit provisions year-to-date, we remain confident in the quality of our loan book, which is predominantly secured, prudently underwritten and diverse, and supported by the deep expertise of our people.”
Meanwhile, Close Brothers Group’s asset management and securities divisions posted positive returns, helping to offset banking division losses.
The Group’s Common Equity Tier 1 (CET1) ratio – a measure that compares its capital against its assets – is 14.2% (31 July 2019: 13.0%), which “provides 620bps headroom above the minimum requirement of 8.0%,” it said in a statement.
Close Brothers said it had not made use of the Government’s Coronavirus Job Retention Scheme as none of its employees had been furloughed.
The update came one month before the end of the group’s year on July 31.
Preben Prebensen, 63, chief executive, said: “While early indications of a return to activity following the easing of lockdown restrictions are encouraging, it remains too early to know the full impact of Covid-19.”
CBILS, CLBILS & BBLS
Close Brothers’ invoice finance, asset finance, brewery rentals and property businesses are accredited to lend under Coronavirus Business Interruption Loan Scheme (CBILS), its invoice finance business is accredited to lend under the Coronavirus Large Business Interruption Loan Scheme (CLBILS) for larger companies, and its asset finance business is accredited to lend under the Bounce Back Loan Scheme (BBLS) for small business loans.