Arbuthnot Banking Group has reported a surge in annual profit on the back of growth in its small business offering and higher interest rates.
The London-listed historic private and commercial bank posted a pretax profit of £47.1m in 2023, more than double its 2022 figure of £20.0m.
UK banks’ profits were boosted by rising borrowing costs for much of last year, with the Bank of England hiking interest rates to a post-financial crisis high of 5.25 per cent.
Arbuthnot’s net interest income – the difference between what it pays out to savers and receives in interest from loans – increased to £136.6m in 2023 from £99.1m in 2022.
Analysts predict that the wider sector banking sector has reached a peak in profitability as policymakers are expected to start cutting interest rates this year and competition for deposits and mortgages adds margin pressure.
Arbuthnot’s chair and chief executive Sir Henry Angest acknowledged that while lower interest rates would “have an impact on the profitability of the group”, its long-term opportunities “to grow and prosper continue to be undiminished”.
“Interest rates have been helpful, but the real reason why these results are stronger is our development of a commercial SME bank,” chief operating officer Andrew Salmon told City A.M. “We’ve brought relationship and service to that sector and are getting strong growth out of it.”
The firm expanded its offering to small businesses after selling down its stake in Secure Trust Bank in 2016, deploying the capital to grow substantially.
Arbuthnot’s customer deposits rose 21 per cent to £3.8bn last year, which it said was driven by the increasing number of SMEs banking with it.
“I always judge the strength of a bank by its ability to raise deposits, and that’s what we’ve been developing,” Salmon added. “If we produce the right service and relationship that clients want, which is what we’re doing, we believe we can grow.”
Meanwhile, the bank’s customer loans grew six per cent to £2.3bn despite it having “tightened its credit appetite.”
Arbuthnot’s wealth management division saw funds under management and administration swell to £1.71bn last year, up 29 per cent from £1.33bn in 2022.
It also reported “substantial surplus liquidity” at the end of 2023 at £962m above the regulatory minimum, compared with £535m in 2022.
The bank declared a final dividend of 27p for the year, up from 25p in 2022 and taking its total dividend 4p higher to 46p.
Arbuthnot, based in the City since its foundation in 1833, is due to relocate its London offices from 7 Wilson Street to 20 Finsbury Circus. The new location will boast 45 per cent more office space, the bank said.