Secure Trust Bank has announced a cut in its profit forecasts for the current year, attributing the revision to the performance of its motor finance division.
The London-listed bank provided a trading update today, indicating that after the Financial Conduct Authority's decision on motor finance, it resumed normal levels of vehicle finance loan collections activity, as reported by .
The Solihull-based bank also noted that early arrears in vehicle finance are at a three-year low. However, it acknowledged that the process of recovering value from an excess level of defaulted balances is more protracted than initially anticipated, with some recoveries expected to extend into 2025.
As a consequence, Secure Trust Bank anticipates profits to fall short by £10m to £15m this year.
Following the announcement, analysts have revised their target prices for the bank's shares. Investec has reduced its target from 1821 pence to 1604 pence.
Similarly, Shore Capital adjusted their target price down from 1750 pence to 1650 pence. They highlighted that their rating "does not current include any potential legacy redress impact from the ongoing issues in the motor finance industry, which are currently too uncertain to quantify with any degree of confidence but could be significant".
The sector has been further impacted by a recent Court of Appeal ruling, which determined that brokers cannot lawfully receive commissions from lenders without the customer's fully informed consent, leading many banks to halt new business in motor finance.
Secure Trust Bank CEO David McCreadie expressed his concerns, saying: "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,".
In their latest trading update, Secure Trust Bank reported a measured growth in net lending by 0.5 per cent to reach £3.44bn over the previous quarter. Deposits also showed an increase of 3.2 per cent, amounting to £3.14bn.
Over the span of a year, the bank witnessed a more significant boost, with net lending up by 7.1 per cent while deposits jumped 15.6 per cent.
Commenting further, McCreadie said: "The group has continued to grow net lending in the quarter, albeit at a lower rate in what remained a challenging economic environment," and he confirmed the bank's cautious approach with the words: "We continued to manage lending growth prudently within our prudent risk management parameters."
Looking ahead, Secure Trust Bank conveyed optimism as they indicated being "on track" for securing £5m in cost savings by the end of this year, a figure set to be augmented by another £3m the following year.
