Recent data from the Bank of England has revealed that consumers are borrowing more than ever on UPL, responding to those seductive adverts to consolidate an array of debts into one single lump.
Despite forecasts of slower economic growth, unemployment rising from an 11 year low and higher inflation, some lenders are now offering medium term UPL at record low interest rate margins, Secure Trust Bank (STB) said.
STB regards these dynamics as unsustainable and is to stop originating new UPL business until such time as sanity is restored to the market or, as STB put it, risk adjusted yields become more attractive.
In a pre-close trading statement, the bank said results for 2016 should be in line with market expectations.
The group completed the sale of its branch-based consumer lending business Everyday Loans during the year, and the one-off profit from this means 2016 should be the tenth year in a row in which the return on required equity has been around the 30% market.
Management reminded shareholders that the significant increase in capital arising from the sale of Everyday Loans will dilute the return on equity ratio until such time as the capital is re-deployed.
Given the uncertain economic outlook, STB tightened credit underwriting standards and increased pricing in the consumer finance and small-to-medium (SME) areas during the final quarter.
Despite this, net balances in Consumer and SME lending continued to grow in the final three months of 2016, STB said.
“Following the successful completion of a number of complex projects in 2016 including the divestment of the sub-prime unsecured personal loan business of Everyday Loans, the closure of the current account product and the step up from AIM to the main market, STB enters 2017 well placed to pursue its strategic priorities through developing its business model organically and pursuing M&A opportunities,” the company said.
“This coupled with the main market premium listing and substantial capital resources, positions the group well to navigate the evolving economic and regulatory environment and seek to take full advantage of any opportunities that may arise,” it added.
Shares were unchanged on the announcement.