Secure Trust Bank issues profit warning amid motor finance turmoil
Specialist lender Secure Trust Bank (STB) has issued a profit warning due to the performance of its vehicle finance business.
The pause of collections activity following the FCA’s Borrowers in Financial Difficulty (BIFD) review, led to a higher volume of vehicle finance loans reaching default status.
The Solihull lender now expects underlying profit before tax for FY24 to fall materially below market expectations by between £10m and £15m.
Following the recent Court of Appeal’s decisions, STB paused new consumer lending in vehicle finance to consider the implications of the ruling and is now commencing new business.
The ruling last week of a test case with Close Brothers and FirstRand Bank upheld a decision that said car finance brokers could not receive commission from lenders, without securing a customer’s fully formed consent to the payment.
It had led to a pause across the motor finance industry, with many preparing to hold cash back for what could become a multibillion-pound compensation scheme.
STB says it has restored collections to normal levels and initiatives are in place to recover value from the excess level of defaulted balances. It expects some value recovery is likely to extend in 2025, due to the process taking longer.
STB increased its cost savings target from £5m to £8m after redesigning the organisation through its cost optimisation programme, Project Fusion.
In Q3, STB has seen its net loan book grow by 0.5%, making further progress towards its £4bn loan book target.
David McCreadie, CEO of STB said: “The Group has continued to grow net lending in the quarter, albeit at a lower rate in what remained a challenging economic environment. We continued to manage lending growth prudently within our prudent risk management parameters.
“The implementation of the organisation design changes required to complete delivery of the initial £5m of Project Fusion cost savings by the end of this year continued. As a result, we are on track to deliver an additional £3m of cost savings in 2025.
“We are disappointed that it will take longer than expected to recover value from the excess level of defaulted Vehicle Finance balances, and the recent Court of Appeal decisions have added additional uncertainty on the benefits to be realised in 2024.
“Notwithstanding the near-term impacts of the excess defaults in Vehicle Finance, we have seen arrears in Vehicle Finance fall to the lowest level since 2021, have continued to grow total net lending, continued to optimise our cost base, made good progress on early repayments of TFSME funding, and see continued growth opportunities ahead of us.”
