The Clydesdale Yorkshire Bank Group (CYBG) has set aside a further £450m to cover the cost of payment protection insurance mis-selling.
The bank’s interim results for the six months ended 31 March detailed changes during the period since it was spun out of National Australia Bank at the start of the year.
Only 9.7 per cent of the £450m charge impacts the group’s income statement (£44m) as a result of the conduct indemnity provided by NAB.
“We consider that, based on our updated assumptions, the total cover remaining of £1.8bn is sufficient to cover the costs of dealing with legacy conduct matters,” the statement added.
The report also detailed progress made towards cutting costs, which were put at £353m for the period.
The bank is on track to deliver full year costs “well below” the £762m expectation for 2016, at £730m for the full year.
In addition to reductions to the branch network announced in April, the group implemented a voluntary severance scheme for senior grade staff.
As a result around 150 staff will exit the business in the second half of the year, with the vast majority expected to leave by mid-July.
“We will continue to review our operating costs in the second half, generating further efficiency initiatives,” read the statement. “We are focusing on four areas where we believe we can have a material impact; the distribution network; process improvement; organisational efficiency; and central cost management and procurement.”
Chief executive David Duffy said the business has “strong momentum” from mortgage market growth and SME lending.
“In the first half we have demonstrated good progress, with 9.8 per cent annualised growth in mortgages, stabilisation of our core SME book, over £1bn of new loans and facilities for SMEs made available and continued growth in current accounts,” he stated.
Underlying profitability increased to £107m, from £48m in the six months to September 2015, driven by an increase in operating income, lower costs and reduced charges for bad debts.
Compared to the six months to 31 March 2015, underlying profitability was lower by £4m, with higher operating income offset by higher costs incurred from being a standalone business.
The group also saw a change in mortgage origination mix, “as expected”, with a higher proportion of owner occupied mortgages compared to buy-to-let, despite very strong buy-to-let volumes at the end of the period in advance of the changes to stamp duty.
“We welcome the recent Financial Policy Committee consultation on the buy-to-let market - we believe it will continue to be an important part of the housing market in the UK,” the statement added.
“We compare favorably with the proposed underwriting criteria, stress testing affordability of mortgages to 7.45 per cent compared to the PRA’s proposal of a current minimum of 5.5 per cent.”
Earlier today (24 May), both Nationwide and Paragon Group made similar statements, with the latter noting its tightening of buy-to-let lending criteria in January, increasing the stressed interest rate in its minimum interest coverage ratio test from 5 to 5.35 per cent and embedding forward-looking affordability tests.