OneSavings Bank PLC (LON:OSB) said it has increased its liquidity from the Bank of England as customer loans increased 5% in the first quarter of 2020 while deposits remained flat.
As opposed to the larger lenders, FTSE 250-listed OSB, despite being a lot bigger since its merger with fellow mid-sized lender Charter Court last summer, does not release full quarterly results but just trading updates, so there was no profit or update to the CET1 capital ratio, which ended 2019 at 16%.
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OSB did reveal that it has granted payment holidays on roughly 24,000 customer accounts, equivalent to 26.7% of its mortgage book by value.
“It is too early to predict how borrowers will behave after the end of the payment holiday or what the potential macroeconomic impact of the current crisis will be,” the bank said, but its research showed that 12-15% of buy-to-let mortgage customers said their tenants had stopped paying during the coronavirus crisis.
In a scenario of a 6% fall in GDP, jump in unemployment to almost 8% and a 14% fall in house prices, OSB said “applying these updated scenarios as at 31 March 2020 would result in an approximate doubling of the group’s expected credit loss provision balance”, which was £42.9mln at the end of December.
Having cancelled its dividend last month and reducing risk0weighted assets by circa £287mln through structured asset sales in January, OSB said its CET1 ratio would have been 17.2% as at the end of December on a pro forma basis.
Chief executive Andy Golding said: “We entered the crisis with exceptionally strong capital and liquidity positions which allowed us to rapidly assist those concerned about potential financial difficulty by offering payment holidays on a self-certified basis.”
During the quarter the lender strengthened its liquidity further by taking out an additional £645mln through the BoE’s index long-term repo scheme, resulting in liquidity coverage ratios increasing to 247% for OSB and 170% for Charter Court Financial Services by the end of March, from 199% and 145% respectively at the end of December.
A £1bn securitisation of organically-originated mortgage assets in March provided an extra pool of collateral that the lender said “significantly increases the contingent wholesale funding options available to us through commercial repo transactions”.
Once approved, the bonds can also be used, in place of whole loan mortgage collateral against the BoE facilities.
Underlying net interest margin was provided, which at 2.66% was broadly flat since the end of last year.