5th Oct 2022 11:30
(Alliance News) - Arbuthnot Banking Group PLC on Wednesday said it expects its full year results to be "ahead of market expectations" as it benefits from higher base rates.
Shares in the London-based private and commercial bank were trading 8.1% higher at 805.00 pence each in London on Wednesday mid-morning.
The company said that increases in the Bank of England base rate have "continued to drive the increased profitability of the group."
In September, underlying pretax profit approached GBP4 million, excluding the one-off cost of living bonus payment. The company confirmed that future base rate rises will continue to have a positive impact on the group's revenue as about GBP2.6 billion of its assets have variable interest rates linked to the base rates.
As a result, it expects to exceed the market's expectations of pretax profit for 2022 of GBP13 million. The strong growth stems from Arbuthnot "experiencing higher net interest margins than it expects over the longer term".
It did note, however, it has not yet seen the full impact of inflationary pressures currently working through the economy.
The company's deposit balances exceeded GBP3 billion for the first time. While the cost of deposits is beginning to rise and now exceeds 81 basis points, this compares favourably with the current base rate of 2.25%.
Arbuthnot confirmed that its "liquidity remains robust" with the bank having surplus liquid assets of more than GBP411 million above the minimum required amount of GBP565 million.
Loan balances have increased to GBP2.2 billion, but, given market uncertainty, the company said it is tightening its credit appetite, particularly in real estate lending. It expects lending volumes will reduce in the short term.
While the risk of defaults will increase, it said that its non-performing loan book has been reduced to its lowest level in two years and there are "no signs of material stress in credit metrics." The average loan-to-value against the loan book is 51%, leaving significant levels of security to withstand and minimise falls in the property market.
By Chris Dorrell; [email protected]
Copyright 2022 Alliance News Limited. All Rights Reserved.