Rising rates helped the Co-operative Bank record a tenth consecutive quarter of profitability, as the lender considers its options regarding a potential sale.
Although it recorded a significant increase in net interest income, which rose to £245.1m from £108.2m last year, the Co-op bank profit remained roughly flat at £61.8m due to increased expenditure.
Operating expenditure increased by just over £30m to £205.8m as it undertakes large scale investment in its IT equipment. It also completed the insourcing of its Capita mortgages, which saw around 400 new staff join the bank.
Excluding costs related to its investments, profit was up nearly £10m year on year.
“That just demonstrates that as the bank gets through its big programme of change…we can then become a lot more normalised,” Co-op bank chief executive Nick Slape told City AM.
The bank also set aside £300,000 in impairments to provision for the changing economic outlook, particularly rising rates. Slape noted that the bank was not seeing many signs of stress.
“This is a low risk bank so that’s why I’m not seeing it,” he said. “95 per cent of our balance sheet is secured lending through mortgages…it’s low loan to value and the last thing people typically default on is their home,” he noted.
Over the second half of the year the Co-op Bank forecast a net interest margin of around 180 basis points, reflecting additional interest rate hikes partially offset by pressure on its mortgage margin.
The Co-op Bank’s CET1, a measure of a banks financial strength, ratio stood at 20.1 per cent while it has more than double the minimum required liquidity.
The results will do little to cool speculation that the Co-op Bank is a target for takeovers. Earlier this year it was reported that the owners brought in advisers to help consider options, including a sale or an IPO.
Slape said the “narrative hasn’t changed…A mid-tier bank that’s got £19.5bn of franchise, current accounts and deposits is valuable in a higher interest rate environment”.
He said rising rates could force some lenders, particularly those who operate using more expensive wholesale funding, to merge with rivals to diversify funding streams.
“Higher interest rates could be a catalyst for the long awaited consolidation of mid tier banks,” Slape said.