Arbuthnot Banking’s profit dipped in the first half of the year as existing fixed-rate deposits continued to reprice onto higher terms as they were renewed.
The merchant bank recorded £20.8m in underlying profit before tax in the first half of the year, compared to £29.3m in the same six months of 2023.
The drop in profit came largely due to the 12-month lag between interest rate hikes from the Bank of England and how the bank’s existing fixed-rate deposits are priced.
The average cost of deposits rose to 3.2 per cent, compared to 1.9 per cent in the same period last year.
When applied to customer deposit balances of over £3bn, this cost Arbuthnot £35.2m, with the bank warning that the trend will continue in the year’s second half.
Customer loan balances increased by three per cent to £2.4bn from the end of 2023. Specialist lending balances rose 12 per cent in the first half of the year, 29 per cent year on year.
Funds under management and administration jumped significantly throughout the six months to almost £2bn, compared to £1.4bn this time last year and £1.7bn at the beginning of 2024.
The bank said this 43 per cent boost was due to net inflows showing a fourfold increase over the first six months of 2023.
Henry Angest, chair and chief executive of Arbuthnot, said: “The group made good progress in the first half of the year, again delivering strong profits in an evolving interest rate environment.
“The balance sheet evolution and growth achieved in the period demonstrates the ongoing success of our ‘Future State 2’ strategic plan, with its focus on diversifying the loan book whilst continuing to enhance our value proposition to relationship clients.
“While an expected fall in interest rates in the second half will have a short-term impact on profit growth, the group is well positioned to take advantage of the market opportunities we anticipate over the near, medium and long term.”