FINANCIALS: Yorkshire BS: 1H24 Shows Solid Credit Stats, Spreads Underpinned

Yorkshire BS (YBS: A2/A) 1H24 results were also out this morning and showed few surprises. Echoing the Lloyds results, UK mortgage quality looks benign and YBS spreads have done well YTD but lagged €IG peers in the last month, so appear well underpinned, in our view.

• Credit stats: loan losses were just 2bp (up from 1bp in 2H23) but obviously incredibly low. Model adjustments have flattered this figure, but we estimate it to only be c.5bp ex-adjustments. Non-performers are stable on Dec-23 (at 0.9%) and the CET1 ratio is 17.8% (+1.1pp from Dec-23). So, credit stats look solid.
• Revenues are down c.19% y/y but this is reflective of lower levels of prevailing rates and we believe YBS does not, unlike quoted peers, operate a structural hedge, nor does it price for profit.
• Spreads have beaten the €IG bank peers by 11bp since last results (on 29-Feb, tightening 26bp) but they’ve underperformed in the last month (by 7bp). There’s nothing in the credit metrics to indicate negatives and those positive model reviews in the ECL (expected credit loss) calculations is indicative of the benign outlook.