A temporary slowdown in growth is inevitable for OneSavings Bank despite a robust trading update, analysts have said.
A trading update last week (November 3) showed the group’s new loans hit £1.6bn in the three months to September 30, the highest level since before the pandemic, with arrears remaining stable.
The specialist lending and retail savings bank’s net loans rose 7 per cent in the nine months to the end of September to £22.4bn.
Chief executive of OneSavings Group, Andy Golding, said: “Looking ahead, while the outlook for the UK economy and the overall shape and size of the mortgage market is somewhat unclear, the fundamental drivers of demand in the private rented sector remain robust."
ONB's loan growth by year
Source: Peel Hunt
Peel Hunt analysts said the update was “robust…in spite of a turbulent economic backdrop”, and the medium-term prospects of the group remain unchanged.
The broker expects the company to remain “strongly profitable”, due to the collateralised nature of its loan portfolio and “conservative” balance sheet.
“OneSavings Bank [should] outperform most other UK banks during any downturn,” the note added.
However, Peel Hunt's outlook for the company's growth next year has deteriorated, due to the price of mortgages, which has reduced affordability.
The broker's analysts noted that the majority of the bank's mortgage loans are fixed rate, so higher new mortgage pricing has yet to hit the portfolio, and a predicted fall in house prices will negatively impact house purchase activity.
It added that OneSavings Bank is likely to tighten rather than relax credit underwriting standards as a result, "consistent with its track record of prudence".
Accordingly, Peel Hunt has reduced its loan growth expectations from 10 per cent to 4.5 per cent next year, and to 7 per cent the year after.
It expects the bank to return to 10 per cent loan growth in 2025.