This is flat on the £600,000 loss reported during the same period last year.
The group said the arm was making progress on implementing a new business plan and said the loan book was in line with the previous year’s end with a steady pipeline. For the period, the specialist finance business reported customer loan balances of £9.6m, up from £7.5m last year.
Chairman and chief executive Henry Angest said the group’s specialist lending division’s business model of attracting “cheaper but sticky balances” from relationship-driven deposit clients was dependent on a normal interest rate environment.
He added: “The average cost of deposits in 2021 was 39 bps and it is currently running at 37 bps. The upward pressure on this rate has been reduced, as we took a strategic decision not to compete for deposits on the non-relationship aggregator platforms.”
Further, the group said its acquired mortgage portfolio was “operating in line with expectations”, with balances of £171.2m compared to £191.1 as at 30 June 2021.
Arbuthnot Commercial Asset Based Lending, which provides loans to businesses for operational purposes, reported a profit before tax of £2.9m, up from £1.8m last year. It closed the period with a loan book of £238.8m, up from £147.9m last year.
Pointing to a three-year strategic ‘originate to sell’ agreement Arbuthnot’s banking division secured last year with a third party to build its commercial real estate portfolio, the group said it completed transactions totalling £20.4m so far with a “strong pipeline in development”.
The group also said there was a large volume of capital intensive commercial real estate loans set to mature in the second half of this year, outside of the bank’s appetite, which it would be able to support due to this agreement.
The originate to sell model is where a loan originator sells loans to third parties through securitisation.
The group reiterated the strength of its position due to recent base rate rises, as originally stated in its Q1 report. It said rising rates had a “positive effect” on its revenue for the year.
It added: “There has been a strong preference from clients for fixed rate lending outside the bank’s targeted return on capital. This had presented a barrier to growth with an adverse impact on the pipeline, however, enquiries have started to return to expected levels towards the end of the period.”
The banking division reported a profit before tax of £6.6m, up from £100m last year with lending balances totalling £1.46bn and deposits of £2.61bn. This is compared to lending balances of £1.28bn and deposits of £2.43bn last year.
It said: “The increase in profitability is primarily due to increased interest income from lending balances repricing up as a result of successive increases in the Bank of England base rate, with the average cost of deposits remaining stable over the period.”
Group performance
Overall, Arbuthnot Banking Group saw its profit before tax rise 11 per cent to £3.4m and its underlying profit before tax reach £10.7m, up from £6.5m last year.
Angest said: “During the first half of 2022 the group has seen a marked improvement in underlying profitability as a result of the rising interest rate environment. Given our low cost and stable relationship-based deposits, the group is well positioned to continue to fund the diverse lending businesses and maintain good margins as it builds towards delivering our ‘future state’ plan.”
He also said overall demand for lending products continued across its divisions with balances growing to £2.1bn, a £112m rise on year-end 2021.
Regarding the economic position and outlook, Angest said the group agreed to give its employees a one-off payment of £1,500 payable in September to alleviate rises in the cost of living. This will cost the group around £1m.
He also noted the recent decision by the Bank of England’s Financial Policy Committee to introduce a one per cent increase to the countercyclical capital buffer. This is a tool used by the central bank to adjust the resilience of the banking system and is increased when risks appear to be increasing.
Angest said: “Confusingly, at the same time the committee encouraged banks to continue to lend into a possible recessionary economy.”
The original article incorrectly stated Arbuthnot Specialist Finance reported a £600m loss, this has been amended.
