The group attributed its mortgage performance to the prioritisation of its margins in an “increasingly competitive environment”.
Its net interest income rose from £677m to £782m which it said was down to the higher rate environment, supportive conditions in the deposit market and improved liability mix which offset the pressure on mortgage spreads.
The group reduced its credit impairment provisions because of the overall stability of its mortgage portfolio and improved factors such as rising house prices. The average weighted loan to value (LTV) of its loan book remains low at 54.4 per cent, down on the 55.3 per cent reported 30 September 2021.
It released £9m in expected credit losses (ECL), bringing this down from £33m to £24m. It also reduced its post model adjustments (PMA), which are reserves to address any shortcomings in its ECL. This was cut from £54m to £42m.
Clydesdale lowered its PMA for payment holidays, which was introduced in 2020, as it said borrowers had “successfully exited” arrangements. This now stands at £8m, down from £22m.
However, it considered it to be likely that a group of borrowers will suffer “increased stress” from the heightened cost of living, so a £3m temporary affordability stress PMA has been introduced in response.
Other PMAs totalling £2m have also been retained.
Clydesdale’s PMAs for its buy-to-let portfolio remained fairly stable, with a nominal increase from £28m to £29m. It said it was taking a “cautious approach” to this component of the portfolio.
A spokesperson said: “The group continued to monitor the level of ECL held on BTL mortgages in the year due to uncertainty of the extended impact on landlords and that of their tenants. A new PMA is now held to reflect an impact on debt affordability as a result of rising energy prices and other inflationary effects.”
Overall, the group maintained PMAs to address ongoing economic uncertainty over anticipated defaults in the future.
Profits and future preparations
Clydesdale reported a statutory profit before tax figure of £313m, up from £70m last year. Its underlying profit before tax stood at £386m, up from £243m.
It said this was driven by improved income and lower impairments.
The group said the macroeconomic outlook had “become more uncertain” over the six months and said it was “carefully monitoring” the impacts of higher inflation on the cost of living and the conflict in Ukraine.
However, it said it was not yet seeing signs of “significant stress” in the book.
“We enter this period with prudent coverage, robust underwriting and a defensive portfolio,” it added.
David Duffy, chief executive, said: “We’ve made good progress against our strategy, while delivering a significant increase in profit. We have positive momentum in attracting new customers to Virgin Money through record credit card sales, good growth in personal current account openings and a strong uptake of our new digital fee-free business current account.
“We have upgraded our net interest margin guidance given strong growth in unsecured lending, combined with the rising interest rate environment. Looking ahead, while the macroeconomic outlook is uncertain and there are increased cost pressures on consumers, we remain prudently provisioned and are confident in the quality of our loan portfolio.”
