One Savings: Weak Margin, Unhelpful For UK Mortgage Lenders

One Savings Bank (OSB LN) results included a big margin disappointment which is a key stress point for all the UK mortgage lenders. This is a small datum but negative for Lloyds, Nationwide and the peers, we feel.

• Key credit metrics: credit losses have dropped to just 3bp in 2H23 (from 37bp in 1H23) and non-performers are 1.4% (from 1.3% at Jun-23). CET is 16.1% (consensus: 15.9% and 15.7% at Jun-23). So these metrics are solid and the issuer has met its MREL requirement for Jun-24 already.
• The net interest margin (NIM) is the key issue here: on 2-Nov-23 mgmt restated its expectation of 2.6% for FY23 and has just reported 2.51% which, for the recency, is a very significant miss, we fear.
• Outlook: mgmt is looking for a flat NIM in 2024 (consensus has 2.79%) so quite a downgrade there but guidance for 5% loan book growth is inline with expectations. This NIM guidance is quite specific to this BTL (buy-to-let) lender which is having to grow into its MREL requirements but is nonetheless a minor negative for the UK mortgage majors (Lloyds, Nationwide).