Secure Trust Bank slashes profit expectations amid motor finance ruling

Secure Trust Bank has slashed profit expectations for this year due to the performance of its motor finance business.

In a trading update today, the London-listed lender said that following the Financial Conduct Authority’s motor finance decision, it restored vehicle finance loan collections activity to normal levels.

Meanwhile, early arrears in vehicle finance are at the lowest level for three years, it added, though recovering value from the excess level of defaulted balance was taking longer than expected. It said this meant some recoveries would take longer than expected and stretch into 2025.

The lender said its profit would come £10m to £15m below expectations this year as a result.

Analysts downgraded the bank’s target price for the stock as a result, with Investec cutting it from 1821 pence to 1604 pence.

Shore Capital also downgraded their target price, from 1750 pence to 1650 pence, but said the 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”.

Motor finance court ruling

A Court of Appeal ruling last week that brokers could not lawfully receive a commission from the lender without obtaining the customer’s fully informed consent to the payment has forced many banks to pause new business in motor finance.

“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,” said Secure Trust Bank CEO David McCreadie.

Secure Trust Bank also said in the trading update that it had seen net lending increase by 0.5 per cent over the last quarter to £3.44bn, while deposits increased 3.2 per cent to £3.14bn.

Net lending increased 7.1 per cent over the last year, while deposits increased 15.6 per cent.

“The group has continued to grow net lending in the quarter, albeit at a lower rate in what remained a challenging economic environment,” said McCreadie added.

“We continued to manage lending growth prudently within our prudent risk management parameters.”

The bank also said it is “on track” to deliver £5m of cost savings by the end of this year, which when combined with an additional £3m in savings next year,