Shares in FTSE 250 lender OneSavings Bank (OSB) have dropped as much as 18 per cent after the group lowered its forecasts for the full year on the back of rising competition in the mortgage market.
Alongside its results for the first half of 2024, the bank said it expected its net interest margin (NIM) – measuring of the gap between interest received on loans and rates paid for deposits – to be between 2.3 and 2.4 per cent for the full year.
This range is down from its previous guidance of around 2.5 per cent, with OSB flagging that “increased competition in the subdued mortgage market” would likely result in maturing fixed-term mortgages redeeming or switching onto lower rates more quickly.
UK lenders have broadly seen the tailwind from higher borrowing costs fade in recent months as the Bank of England moved closer to cutting interest rates for the first time since March 2020, ultimately doing so earlier this month.
OSB, which specialises in subsections of the mortgage market like buy-to-let, also lowered its forecast for loan book growth. It now expects an increase of around three per cent for 2024, compared to a previous estimate of around five per cent.
The bank forecast a cost-to-income ratio – a key measure of efficiency where lower is better – of roughly 36 per cent, compared to a previously-guided figure of around 33 per cent.
Following the results, RBC Capital Markets lowered its price target on OSB’s stock to 550p from 625p, which analyst Benjamin Toms said reflected “tougher operating trends”.
“We expect the bank to come to market with medium-term guidance once there are less moving parts to NIM,” he added.
The bank reported a statutory pretax profit of £241.3m for the first half of 2024, compared to £76.7m during the same period last year. It announced a new £50m share buyback.
The sharp rise in profit was mainly driven by the fact that OSB’s bottom line was not hit an adverse effective interest rate (EIR) adjustment like it was last year.
OSB took a £181.6m hit from the adjustment in 2023 after customers chose to refinance their mortgage earlier than expected.
The lack of an adverse EIR adjustment helped OSB’s net interest income jump 49 per cent to £353.5m for the six months, while its NIM rose 66 basis points to 2.37 per cent.
OSB’s loan book also grew by 1.4 per cent to £26.1bn. Its originations fell to £1.9bn from £2.3bn, which the bank said reflected “pricing discipline and a focus on returns”. Retail deposits grew 10 per cent to £24.3bn.
Chief executive Andy Golding, whose pay for last year was slashed by 40 per cent, commented: “We have seen an improvement in the macroeconomic outlook recently which supports our cautious re-entry into more cyclical, higher margin sub-segments, which will contribute to returns in the medium term.
“We are now past peak interest rates, which will also provide a much-needed stimulus to the mortgage market.”