Against a challenging economic backdrop, TSB has focused relentlessly on supporting customers and small businesses through accelerating delivery of its digital banking functionality
TSB’s industry leading Fraud Refund Guarantee continues to protect customers, reimbursing every TSB customer who has been an innocent fraud victim
Financial highlights for first half 2020
- Total customer lending at £31.3 billion increased by £0.2 billion (+0.6%) in H1 2020 (£0.9 billion; +2.9% year-on-year), with growth in business lending and stable core mortgages offset by lower unsecured balances. At H1 2020, the mortgage portfolio loan-to-value remained low at 44%.
- Growth in business lending includes £0.4 billion of support to more than 15,000 small and medium sized businesses through the Bounce Back Loans Scheme.
- Customer deposits at £32.9 billion increased by £2.7 billion (+9.0%) in H1 2020 (£3.1 billion; +10.3% year-on-year), primarily reflecting lower levels of consumer spending and an increase in business banking deposits.
- The balance sheet remains resilient, with a Common Equity Tier 1 ratio of 19.4% and Liquidity Coverage ratio of 247%.
- TSB reported a statutory loss before tax of £65.5 million, compared to a pre-tax profit of £21.1 million in H1 2019. Credit impairment charges increased by £87.5m compared to H1 2019, reflecting a significant weakening in the economic outlook, including higher forecast unemployment and house price declines.
- Net interest margin of 2.49% (H1 2019: 2.76%) was impacted by Covid-19 customer support measures and a reduction in the mix of unsecured lending.
- The reduction in operating expenses to £418.2 million (H1 2019: £424.8 million) reflects ongoing progress on efficiency including a reduction of c. 1,000 FTE (H1 2020 v H1 2019), partly offset by increased investment in enhanced digital capability.
Debbie Crosbie, TSB’s Chief Executive Officer, says: “We had a strong start to the year, but the external environment changed significantly when Covid-19 struck. We’ve benefited hugely from the technology platform we now have in place at TSB, enabling us to accelerate our digital offer for customers when they needed us most.
“Despite the challenging context, our balance sheet and capital position remain strong, we have improved efficiency in our operations, and our purpose to help people increase their money confidence has never been more relevant.
“I’m particularly proud of how TSB colleagues have responded, learning new skills, taking on new responsibilities, demonstrating real resilience, and above all putting customers first – showing TSB at its best.”
|Balance sheet and capital (£ million)||At 30 June 2020||At 31 Dec 2019||At 30 June 2019||Change vs Dec 2019||Change vs June 2019|
|Total customer lending||31,261.3||31,075.8||30,367.8||0.6%||2.9%|
|Total customer deposits||32,909.3||30,182.4||29,848.9||9.0%||10.3%|
|Group loan to deposit ratio||95%||103%||102%||(8)pp||(7)pp|
|Common Equity Tier 1 capital ratio||19.4%||20.6%||20.0%||(1.2)pp||(0.6)pp|
|Financial performance (£ million)||H1 2020||H2 2019||H1 2019||Change vs H2 2019||Change vs H1 2019|
|Management profit before tax - excl. migration costs||(83.7)||19.2||57.6||(535.9)||(245.3)%|
|Additional post-migration charges||(2.1)||(3.8)||(31.8)||(44.7)%||(93.4)%|
|Reimbursement of additional post-migration charges||13.5||39.6||-||(65.9)%|
|Migration related income from LBG||17.7||-||-|
|Other one-off items||(8.7)||(33.7)||(9.9)||(74.2)%||(12.1)%|
|Statutory (loss)/profit before tax||(65.5)||24.9||21.1||(363.1)%||(410.4)%|
|Net interest margin2||2.49%||2.74%||2.76%||(25)bps||(27)bps|
|TSB asset quality ratio3||0.72%||0.24%||0.16%||48bps||56bps|
1Banking volatility reflects gains and losses on derivatives not in hedge accounting relationships, hedge accounting ineffectiveness, and volatility associated with share schemes.
2Management basis net interest income divided by average loans and advances to customers, gross of impairment allowance.
3Impairment charge on loans and advances to customers divided by average loans and advances to customers, gross of impairment allowance.
Continued progress in exceptional circumstances
TSB continued to provide banking services to over five million customers through branches, telephony operations and digital channels throughout the first half of 2020, despite the Covid-19 lockdown restrictions. By leveraging TSB’s modern banking platform, through accelerating digital functionality and use, and focusing on the support that customers and colleagues required, the Bank has been there when it matters most during this extraordinary time.
Relentless focus on serving customers in response to Covid-19
- Granted 38,000 mortgage payment holidays and 50,000 payment holidays for personal loan and credit card customers.
- Provided £400 million of Bounce Back Loans to support more than 15,000 small and medium sized businesses – the vast majority in regions outside of London. This represents a five-fold increase in TSB’s SME loan book through this period.
- Continued to grow business banking customer base with almost 20,000 Business Current Accounts (BCA) opened in the first half of the year, including 4,000 businesses choosing to move to TSB through the Incentivised Switching Scheme (this compares to 6,300 BCAs opened in the same period in 2019).
- Whilst core mortgage performance was stable in H1, mortgage trading showed strong growth towards the end of the period, with TSB showing operational resilience amid increased demand as lockdown restrictions eased, increasing market share of applications in H1 2020 vs. the same period in 2019, from 2.35% to 3.04%1.
- As fraud spiked across the UK, TSB took the lead in highlighting the risk of emerging fraudulent ‘Covid-19 scams’. Through its industry leading Fraud Refund Guarantee, every TSB customer that has been an innocent fraud victim has been reimbursed within the terms of the Guarantee – compared with the industry average of refunding only 41% of losses for Authorised Push Payment scams.
- Net Promoter Score (NPS) is at its highest level in over two years at +14.52.
Accelerating simplification and efficiency – through harnessing the Bank’s modern technology platform
- TSB accelerated its strategic plans in the first half of 2020, introducing new digital banking features through partnerships with tech suppliers including IBM and Adobe.
- TSB Smart Agent introduced in just five days at the start of lockdown – the live chat feature has responded to almost one million customer questions and is available on TSB’s website and via Apple Business Chat.
- Majority of the Bank’s offline forms have been transformed into digital-only interactions for personal and business banking customers with over 25 offline forms released digitally.
- The proportion of transactions processed by TSB through digital or automated channels has increased to over 90% at June 2020, and over 70% of sales are now through digital channels.
- The rate of customer registrations for TSB’s mobile banking app has trebled from just over 1,200 before lockdown to almost 3,500 every day.
- The Bank has two million digitally active customers and the Mobile App store ratings continue to be high (4.8 out of 5 in the App store and 4.3 out of 5 on Google Play).
- Commenced video banking pilots for customers which has already seen 60% of new appointments booked to use this channel. The bank has also partnered with fin-techs including ApTap to trial solutions that meet the changing needs of customers.
- Significant progress has been made on efficiency, with an overall reduction of c.1,000 FTE (H1 2020 v H1 2019).
Operational excellence – establishing an operating model for the future
- Through lockdown around 3,500 colleagues moved to work full time from home. This was supported seamlessly by TSB’s native cloud-based IT infrastructure and by retraining and upskilling colleagues to serve customers in different ways.
- 80 of the 100 positions at TSB’s new IT centre in Edinburgh have been filled during lockdown, part of a £120 million investment in IT.
- TSB continues to see a significant shift in customer behaviour with reductions in branch transactions. The Bank continues to reshape its business, with 43 branches closed in the first half of the year.
Responsible Business Strategy
TSB is firmly focused on key emerging issues including the impact of climate change, the diversity and inclusion agenda, the threat of digital poverty and the future role of businesses in local communities.
The Bank is setting out a three year ‘Do What Matters’ responsible business strategy which will provide the framework to address these issues.
It builds on the good work TSB has been doing for some time, but also focuses efforts on areas where it is expected to do more, such as helping customers be more money confident, helping small businesses thrive and reducing its impact on the environment.
Commenting on the plan, Debbie said: “The Do What Matters plan sets high standards for the way TSB operates and it links directly to our purpose. We’re determined to help make sure that as we recover from the pandemic, we redouble our focus on key issues that we know matter to our customers and their communities. As well as galvanising our efforts across TSB, the plan also allows us to contribute even more through partnerships with other organisations.”
UK economic and market conditions have become significantly more challenging. Interest rates have fallen, unemployment is set to rise, and the housing market has softened. The deepest economic downturn in living memory has had a marked, and varied, impact on the sector. Looking ahead, there is considerable uncertainty about the course of Covid-19 and its impact on the economy and customers. In addition, there remains the risk of a ‘cliff edge, no deal’ Brexit at the end of the transition.
Despite these headwinds, TSB remains strongly capitalised with a healthy liquidity reserve. The Bank remains committed to delivering its strategic plan announced in November 2019. TSB is well positioned to weather the current economic downturn, with headroom to support growth, and continue to serve and support customers.
1Source: CACI Ltd Mortgage Applications Reporting Service
2NPS is based on the question “On a scale of 0-10, where 0 is not at all likely and 10 is extremely likely, how likely is it that you would recommend TSB to a friend or colleague?” NPS is calculated by taking the percentage of TSB customers who score 9-10 after subtracting the percentage who score 0-6. Data is calculated on a 3 month roll so June is based on interviews between April – June 2020.
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