Tesco PLC (LON:TSCO) is considering selling its banking division’s mortgage portfolio after coming under pressure from tough market conditions.
The supermarket group said Tesco Bank has ceased new mortgage lending while it explores options to sell the portfolio, including the complete transfer of related balances and ongoing administration of relevant accounts.
"In recent years, challenging market conditions have limited profitable growth opportunities,” said chief executive Gerry Mallon.
“Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term. To that end, we have made the strategic decision to focus on serving a broader range of customers in more specific areas, which means moving away from our mortgage offer,” he added.
Many UK banks, including Tesco Bank, have had margins squeezed by difficult competition in mortgage lending, low interest rates and a slowdown in the housing market.
Tesco Bank has more than 23,000 customers with total lending balance of £3.7bn.
In the year to 23 February 2019, the bank made an operating profit of £176mln, up from £169mln a year ago, and sales increased 4.7% to £1.1bn as lending to customers grew 7.8% and customer deposits rose 13.2%.
However, the net internet margin – the difference between interest earned on loans and money paid on deposits – edged down to 3.8% from 3.9%.
“Our priority in any sale, is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well,” Mallon said in Tuesday’s announcement.
Tesco stressed that there was no certainty that any deal will result from Tesco Bank’s exploration of options to sell the mortgage portfolio.