OneSavings Bank PLC (LON:OSB) hiked its interim dividend by 23% after delivering strong growth in profits but margins weakened amid tough competition in the mortgage lending market.
The lender posted a 17% increase in pre-tax profit to £91.8mln in the six months ended June 30 as it continued to focus on cost control.
READ: OneSavings Bank shares gain as it estimates strong growth in loan book for the year
The net loan book grew 11% to £8.1bn, driven by high demand for professional Buy-to-Let and commercial property mortgages.
Chief executive Andy Golding said: “Whilst regulatory and tax changes in the Buy-to-Let market have dampened industry-wide demand for new purchase mortgages, this has been partially offset by an increase in demand for remortgages. We focus on the professional Buy-to-Let market where trends remain positive.”
Net interest income gained 15% to £135.2mln but the net interest margin (NIM) – a key measure of banks' profitability – fell to 301 basis points (bps) from 324bps.
Full year guidance unchanged
“Given the growth already achieved this year and considering the current pipeline and application levels for the third quarter to date, we now expect to deliver net loan book growth of high-teens in 2018, whilst maintaining an appropriate margin for the risks we are underwriting,” Golding said.
Golding said there will be further planned expenditure in the second half as the bank invests in technology to improve online banking. The bank left its guidance for the full year unchanged.
The dividend was raised to 4.3p per share from 3.5p last year.
Shares fell 2.5% to 432p each in morning trading.
Numis downgrades OneSavings Bank
Numis lowered its rating on the stock to ‘hold’ from ‘add’ and left its target price at 470p.
The broker said while the NIM is within the bank’s full-year guidance of 300bps, the “rapid decline is of a little concern”.
Profits were ahead of the Numis forecast of £90.1mln.
“Credit quality remains excellent with losses of just 11 basis points, although this was ahead of forecasts,” Numis said.
“The return on equity declined to 26% from 28% but remains very strong and OSB target 30% for the full year, being achieved against a 13.3% Tier I ratio.”