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OSB Group makes £20mln provision to cover suspected fraudulent activity

OSB Group PLC (LON:OSB), the buy-to-let lender, said its business model proved its resilience in 2020.

Net interest income rose to £472.2mln in 2020 from £344.7mln in 2019. Profit before tax improved to £260.4mln from £209.1mln. Underlying profit before tax, which excludes exceptional items, integration costs and other items related to its acquisition of Charter Court Group in October 2019, decreased by 9% to £346.2mln from a pro forma underlying profit of £381.1mln in 2019.

The net loan book grew 4% to £19.2bn in 2020 from £18.4bn in 2019, or by 5% to £19.0bn on an underlying basis (2019: pro forma underlying £18.2bn), or 9% excluding the impact of structured asset sales.

Based on its pipeline and current application levels and risk appetite, OSB currently expects underlying net loan book growth in 2021 will be around 10%, although it offered the usual caveats about continued uncertainty in the economic outlook.

The net interest margin (NIM) was 2.16% (216 basis points or bps) on a statutory basis (2019: 243bps) and 247bps on an underlying basis (2019: pro forma underlying 266bps) due primarily to a delay in passing on the base rate cuts in full to retail savers, which was completed by the end of the third quarter.

OSB expects the underlying NIM for 2021 will return to 2019 levels.

Statutory and underlying loan loss ratios increased to 38 basis points (100 bps equals one percentage point) from 13 bps in 2019 on a statutory reporting basis and 10 bps on a pro forma underlying basis, due primarily to the impact of adopting Coronavirus (COVID-19) forward-looking assumptions and an impairment provision of £20mln in relation to potentially fraudulent activity by a third party on a secured funding line provided by the group.

READ OSB Group thinks suspected fraudulent activity is an isolated incident

The common equity tier 1 capital ratio – a measure of balance sheet strength – climbed to 18.3% from 16.0% in 2019.

The board has recommended the payment of a final dividend of 14.5p, which as per the company’s stated dividend policy is 25% of full-year underlying earnings.

“We entered 2020 in a position of strength, with an attractive pipeline, growing opportunities and robust capital position. Lockdowns inevitably impacted our business and we reacted by tightening our risk appetite to protect margin and credit quality over growth,” said Andy Golding, the chief executive officer of OSB Group.

“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, reflecting the economic outlook and our prudent approach to risk management.

“We celebrated the milestone of being a combined group for a year in October 2020, and the progress in aligning OneSavings Bank (OSB) and Charter Court Financial Services Group (CCFS) continued at pace. We have delivered synergies earlier than anticipated, and by the end of the first year we had achieved more than 65% of our end of year three synergy target and expect to marginally exceed our run-rate pledge for the third anniversary of the combination,” Golding revealed.

“OSB pre-announced its FY20 results on 17 March, so the new information is that the group has provided £20m against the potential fraud (on its non-core funding lines activities), which had a maximum exposure of £28.6m. This is still believed to be an isolated incident, the provision appears conservative, and the underlying PBT of £346m (which includes the charge for the fraud) is still 10% ahead of consensus, which contained nothing for any fraud,” observed Peel Hunt.

Shares in OSB were up 1.95 at 465.2p in late afternoon trading.


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