The Q4 trading update confirmed the business has been performing in line with management expectations and the full-year results should meet market expectations. Secure Trust Bank's (LON:STBS) prudent approach was reflected in the announcement of greater caution in its consumer business including suspension of new unsecured personal lending. We have tempered our estimates for FY17 and FY18 but our updated valuation still shows a c 16% premium to the share price.
Prudent approach in consumer finance
Reflecting its emphasis on growing prudently and profitably rather than prioritising scale, STB has tightened underwriting standards and increased prices in consumer and SME finance, and has stopped originating unsecured personal loans (UPLs). These steps have been taken to mitigate the potential for higher impairment rates in the event of an economic deterioration, including higher unemployment and inflation. Despite the current uncertain economic outlook, other market participants are offering unsecured personal loans at record low interest rates, which STB believes cannot be sustained.
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