Co-operative Bank narrowed its losses in the first half but warned that fierce competition in mortgages will drag margins lower for the year.
The lender posted a statutory loss before tax of £38.5mln for six months to the end of June, compared to a £39.5mln loss last year.
Total income was broadly flat at £191.2mln, which was better than expected.
The net interest margin (NIM) – the difference between interest earned on loans and money paid on deposits – fell to 1.83% from 2.08% due to competitive price pressures in mortgages.
Co-op Bank said NIM will reduce further in the 2019 financial year.
“We have seen margin headwinds this year so far, but our safe lending book provides resilience in what is a challenging retail banking market and an ongoing uncertain political and economic backdrop,” said chief executive Andrew Bester.
“Overall, our business has proved resilient, and as a result we have upgraded our expectations in relation to our CET1 (common equity tier 1 ratio) and cost:income ratios for the remainder of the year.”
The company raised its guidance on CET1 – a key measure of financial strength – to 20.5% from 19% following an outperformance in the first half of 21.9%.
The cost to income ratio is expected to be 110%, compared to 115% previously, on lower costs after rising to 101% in the first half from 95.7% last year.