H118 results show Secure Trust Bank Plc (LON:STBS) is making good progress in shifting its loan mix into lower risk segments and where pricing is more attractive. Despite being in a transition phase, STB delivered strong momentum in loans (22% YoY) and PBT (+38%). Concerns regarding these asset mix changes and the transition drag on earnings have probably contributed to recent share price weakness and the current valuation suggests there is room for rerating as STB continues to deliver successfully on its strategy.
H118: Impairments sharply down
The most eye-catching figure was impairments dropping to 468bp from 871bp in H217; the biggest improvement was the motor finance as the bank moves away from subprime segment. Loan growth was strong in commercial finance and retail point of sale lending where margins remain good, whereas the bank held back in the nascent mortgage business due to prices. Meanwhile, the run-off in the asset finance book was greater than expected. ROTE was 12.3%, up from 10.3% a year ago. Capital headroom remains ample (CET1 13.6%) for the planned growth.
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