Profit before tax leapt up by 169% last year seeing year-end profits reach £182m, its financial update for 2016 revealed.
TSB allowed its staff to share in its success by awarding them more than six weeks’ pay as a bonus, in a total payout worth £28m.
However, Paul Pester, TSB’s chief executive, said fees paid to Lloyds Banking Group, its former parent, for the use of its IT would ‘lead to a significant reduction’ in its profit before tax this year.
Pester said the contractual increase of more than £100m in outsourcing fees the bank must pay to LBG, prevailing low interest rates and the roll off of the tranche of mortgages it took on board from LBG when it first left the group, would drive down profitability.
To combat this attack on profits, the bank, supported by its shareholder Sabadell, is developing its own ‘state-of-the-art’ banking platform.
“The new platform should reduce TSB’s costs considerably, with an expectation that the increase in LBG outsourcing costs […] will be reversed in future years,” said Pester. “The new platform will also provide opportunities for TSB to become more innovative and agile in responding to our customers’ evolving banking requirements.”
TSB expects to unveil the new platform to its customers towards the end of 2017 but they will get a taste of the software through the launch of a mobile banking app in quarter one of this year.
Last year, total customer lending rose to £29.4bn, up 11% from £26.4bn at 31 December 2015.