OSB investigating potential £28m funding line fraud

The bank revealed it could be on the hook for up to a £28.6m loss in the worst-case scenario.

A statement issued to the stock exchange late yesterday said it was delaying its annual results until 8 April but the only impact would be to increase expected credit losses for the year.

“We have very recently become aware of potential fraudulent activity by one of these third parties, where our funding line is secured against lease receivables and the underlying hard assets,” it said.

“The group believes that this is an isolated incident and is appointing Smith & Williamson LLP to carry out an investigation of the third-party company on the group’s behalf.

“Until the investigation has progressed sufficiently we will not know to what extent the receivable has been impaired, with a maximum potential credit loss of £28.6m as at 31 December 2020,” it added.

OSB has issued a total of £175.7m in funding lines of which 66 per cent is secured on property-related mortgages.

Group CEO Andy Golding (pictured) said: “While I am disappointed at the very recent discovery of a potential fraud at one of the non-bank lenders we provide secured funding to, we believe that this is an isolated incident and are committed to expediting our investigation and publishing our full preliminary results on 8 April 2021.”

Lending down and criteria tighter

Overall, OSB said it was expecting to report new mortgage lending of £3.8bn in 2020, a 42 per cent fall from the £6.5bn in 2019, which reflected the impact of Covid-19.

Its net interest margin of 247 basis points (bps) also dipped from 266bps in 2019 after the bank delayed passing on the base rate cuts in full to retail savers.

Encouragingly, balances greater than three months in arrears remained stable at 0.9 per cent of the loan book at the end of 2020.

The majority of customers granted payment deferrals had resumed payment with active deferrals only 1.3 per cent of the group’s loan book by value at 31 December 2020.

And underlying profit before tax held up well at £366.2m, down slightly from £381.1m in 2019.

Golding added that he was proud of the group’s performance in a very challenging year.

“We entered 2020 in a position of strength, with an attractive pipeline, growth opportunities and robust capital position,” he continued.

“Lockdowns inevitably impacted our business and we reacted by tightening our risk appetite to protect margin and credit quality over growth.

“I am pleased that applications have now recovered to near pre-Covid levels in our core buy-to-let and residential sub-segments on tighter criteria and we have a strong pipeline of new business.

“We continue to control volumes in our more cyclical product lines, in accordance with the economic outlook and our prudent approach to risk management.”