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Shawbrook (LON:SHAW) has disclosed a decrease in its underlying profit for the first half of 2024. The underlying pretax profit for the period was £124.5 million, down from £149.3 million recorded during the same timeframe in the previous year. This decline is attributed to a narrowing of lending margins, which is the difference between the interest income generated from loans and the interest paid on deposits.
Effects of Interest Rate Cuts
The reduction in profit coincides with a broader trend affecting UK banks, which have faced reduced interest income this year. This situation is linked to the Bank of England’s move towards cutting its base rate for the first time since March 2020, a decision that was finalized late last month. Additionally, the mortgage market has experienced heightened competition, as lenders have aggressively reduced rates on home loans to attract new customers amid a recovering market.
Growth in Loan Book and Deposits
Despite the decline in profit, Shawbrook has reported growth in its loan book and deposits. The bank's loan book increased by 15% on an annualized basis, reaching £14.3 billion. This growth was supported by strong originations in its core small and medium-sized business (SME) and property lending sectors. Deposits also rose by 21% to £15 billion, reflecting an expansion in the bank’s customer base to approximately 550,000.
Outlook and Strategic Focus
Shawbrook anticipates that margins will improve as its origination mix adjusts across its specialist lending segments. The bank maintains that the overall credit quality of its loan portfolio remains solid, despite a slight increase in the arrears ratio to 2.7%. The bank's strategy involves leveraging technology and data analytics to enhance efficiency and support future growth.
Marcelino Castrillo, Shawbrook's CEO, emphasized the bank's commitment to reinvesting in its business model, which combines advanced technology with skilled talent. The focus will remain on core specialist products and markets, with efforts directed toward improving efficiency and capital generation to support ongoing investment and growth.
