Clydesdale and Yorkshire banks set for a shake up

Operating conditions for Clydesdale and Yorkshire banks deteriorated during the last quarter of 2011 resulting in lower earnings, parent company National Australia Bank has revealed.

Cameron Clyne, chief executive of National Australia Bank Group, said: “It is clear that the UK economy is likely to experience a much longer period of subdued growth with the ongoing sovereign debt crisis in the eurozone and the continuing austerity program by the UK government.

“UK GDP declined by 0.2 per cent in the December quarter. These difficult conditions have adversely affected the performance of UK banking.

“Given our view that recovery is now a longer term prospect, NAB has commenced a strategic review, and will work with UK management to appropriately reposition its business mix and structure for the changed economic environment and improve returns.

“We will inform the market of the outcomes of the review, which we expect to occur by the time of our interim result in May 2012.”

According to a trading statement issued by NAB, net interest margin for Clydesdale and Yorkshire banks declined due to increased wholesale funding costs, higher deposit costs and increased liquid asset holdings.

NAB revealed lending activity in the UK was subdued and fees were lower as a result of a further slowdown in economic activity.

However NAB bosses said expenses in the UK “continued to be well managed”.

The charge for bad and doubtful debts was higher at 1.27 per cent of gross loans and acceptances on an annualised basis in the quarter compared to 0.86 per cent for the September half year, reflecting deteriorating conditions for UK banking customers and a reduction in collateral values.

The ratio of 90 plus days past due and gross impaired assets to gross loans and acceptances increased from 3.12 per cent at 30 September 2011 to 3.22 per cent at 31 December 2011.