Mortgage growth slows as CYBG progresses Virgin Money offer

CYBG confirmed that trading in the three months to 30 June was in line with its expectations on Monday, reporting year-to-date mortgage growth of 3.8% on an annualised to the end of the third quarter, to £24.2bn.

The FTSE 250 firm said that as it had previously indicated, mortgage drawdowns were reduced in the third quarter, due to a lower number of applications in the second quarter.

Full-year 2018 mortgage growth was expected to be at lower end of its guidance range, as the board had previously flagged.

The all-share offer for Virgin Money was continuing to progress as planned.

CYBG reported core SME growth of 4.7% for the year-to-date, with £420m of gross loans and facilities written in the third quarter.

Deposit balance growth for the owner of the Clydesdale and Yorkshire banks was 4.5% on an annualised basis for the year-to-date, which was reportedly managed in line with asset growth, while the company’s asset quality remained “strong” with a net cost of risk of 12 basis points.

Its net interest margin was 218 basis points for the year-to-date, which was in line with guidance, while the board reiterated its 220 basis points guidance for the full year.

The mortgage market was said to have remained “extremely competitive” with continued front book pricing pressure, with the board adding that during the third quarter, retail asset pricing pressure was offset by improved SME margins and lower liquidity costs.

Diverse funding sources enabled deposit margin management in a “highly competitive” market, the board added.

CYBG’s CET1 ratio was strengthened, and “significant progress” was made on the group's IRB application.

The company said its CET1 ratio at period end was 11.4%, with around 15 basis points of CET1 capital generation in the third quarter, in line with expectations.

It said its mortgage IRB application continued to progress well with Module 9 of the Prudential Regulation Authority’s process now complete.

Final actions were said to be being progressed and, subject to PRA review, accreditation was expected in October 2018

In addition, significant progress was made on the group's IRB application for SME lending, with accreditation now expected “much earlier” than previously planned.

All of CYBG’s IRB models for retail unsecured had now been submitted to the PRA ahead of schedule.

On the recommended all-share offer for Virgin Money, CYBG said shareholder documentation was expected to be published on 31 July, with meetings held on 10 September.

It was targeting completion in the fourth calendar quarter, subject to shareholder and regulatory approvals.

“We have delivered another solid performance this quarter, achieving sustainable lending and deposit growth in a highly competitive market while maintaining a stable net interest margin and delivering further cost and process efficiencies in the business,” said chief executive David Duffy.

“We remain on track to deliver our guidance for FY18.

Our position as one of the UK's leading digital banks continues to strengthen: in May we launched our fully API-enabled account aggregation for customers and this month we announced a new innovative partnership with PayPal underlining our ability to work with tech players large and small to deliver new and convenient services for customers.”

Duffy said the economic and political environment in the UK remains uncertain, but added that CYBG remained focused on delivering its strategic objectives and capturing further growth opportunities.

“This includes the RBS Alternative Remedies Scheme where we plan to play a significant role following confirmation of the scheme timetable.

“We continue to expect our recommended all-share offer for Virgin Money to complete in calendar Q4 2018, subject to shareholder and regulatory approvals, creating the UK's first true national competitor to the status quo.”