Rising interest income boosts Co-operative Bank

The Co-operative Bank has posted annual group pre-tax profits to the end of 2023 of £71.4m, a drop from 2022’s £132.6m.

The group’s total income for 2023 was £515.2m, the vast bulk of which derives from interest payments on its loan book. Overall income increased by 3% in comparison to the twelve months ended 31 December 2022 (FY 22: £499.4m).

Net interest income increased by 4% to £477.0m (FY 22: £458.3m) and net interest margin (NIM) has risen by 14 basis points (bps) from 166bps to 180bps, with both benefitting from increases in the base rate.

The bank grew its mortgage book with the acquisition of the Sainsbury’s Bank portfolio in August, comprising c.3,500 customers and c.£0.5bn of balances.

In a statement to the stock market this morning the bank confirmed that exclusive talks are ongoing with the Coventry Building Society towards a merger.

It has been previously reported on TheBusinessDesk.com that the Co-operative Bank is up for sale, with suitors including private equity backed Shawbrook Bank and Spanish owned TSB, both linked with a possible merger or outright bid for the Manchester headquartered financial services business.

Co-operative Bank chief executive Nick Slape

Nick Slape, Chief Executive Officer, said: “We announced in December 2023 that the Bank is in exclusive discussions with Coventry Building Society regarding a possible acquisition of the Bank. These discussions remain ongoing as we continue to evaluate the merits of the combination.”

The Customer Union for Ethical Banking, the independent union for Co-op’s customers, said it backed a deal with the Coventry, saying it would “align perfectly with our dual goals: preserving the bank’s world-leading ethical standards and steering it back towards some form of mutual or co-operative ownership.”

Slape described 2023 as “a year of transformation” and described the results as vindication of a “strong, sustainable and low risk business model.”

He said the statutory profit before tax of £71.4m was impacted by exceptional redress on legacy mortgage business, strategic transformation and advisor costs.

The bank also reported significant progress on an IT Simplification programme on track to complete in 2024. 

Looking ahead, Slape also said the bank would evolve its offer to SMEs.

“We improved our customer journeys in SME by launching a new application process for community customers, who are now able to apply for a business account digitally, significantly reducing friction within the customer journey and replacing the traditional paper-based application process. Our SME digital proposition was improved as we redesigned and rebuilt our public website to help customers find the information they need when researching our Business Current Accounts and also completed a proof of concept on tracking customer journeys end-to-end, enabling us to understand which marketing channels work best for customers and the Bank.”

He also added that the bank has received over 12,500 new current account applications in January, representing an increase of over 300% versus the same period last year. 

New mortgage origination has also been strong with £1.2bn applications in January. 

“Looking to the future, whilst the economic outlook remains uncertain, the Bank is well positioned with a low risk balance sheet and strong capital and liquidity positions. We remain focused on delivering attractive and sustainable returns to our shareholders through growing our core mortgage and current account business, supported by diversification of our mortgage offering and evolving our SME lending proposition,” he said. 

The bank has also “insourced” mortgage operations from Capita, resulting in a significant cost reduction in future years.