Secure Trust Bank Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2025

Key Takeaways

  • Positive Sentiment: Strong lending momentum saw net lending grow 6.1% to £3.8bn (7.3% ex-vehicle finance), bringing the group close to its £4bn ambition.
  • Positive Sentiment: Adjusted profit before tax rose 36.3% H1-2025 YoY to £23.3m, while return on average equity improved to 9.6% (13.7% core).
  • Positive Sentiment: The decision to cease new lending in vehicle finance and run off that portfolio will unlock over £25m of cost savings and drive enhanced returns.
  • Positive Sentiment: Project Fusion has delivered £8m of annualized cost savings already this year, supporting a 4.6pp improvement in the cost-income ratio to 49.1%.
  • Neutral Sentiment: Following the Supreme Court commission ruling, management sees no material change to its provisions, awaiting FCA guidance on redress scope.
AI Generated. May Contain Errors.
Earnings Conference Call
Secure Trust Bank Q2 2025
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good morning everyone and thank you for taking the time to join us for our 2025 interim results presentation. This slide explains the basis of reporting in the pack. Reference is made throughout to total adjusted results, which exclude exceptional items, as reported in our interim report for the six months ended 06/30/2025. Unless otherwise stated, financial metrics and key performance indicators relate to total adjusted results. Where applicable, adjusted results and performance metrics have been split between core and non core operations, the latter being the vehicle finance business.

Operator

A reconciliation of adjusted results to total results is included in the appendix to the presentation. I will make some comments on our overall performance before Rachel covers off the financial results in more detail. I'll then talk briefly about the performance against our Optimising for Growth strategic framework, comment on what has been achieved as a team in recent years, and on the exciting outlook for the group now that we have completed our strategic review. We have helped more customers than ever and have delivered an improvement in returns, with the foundations in place to continue on that trajectory. We've been operating in a higher interest rate environment in recent years than we had initially planned for.

Operator

We are pleased to have seen some further downward movement in the bank base rate to 4% last week. As we indicated would be the case when we announced our full year results in March, reductions in base rate are driving an improvement in demand for credit. Lower borrowing costs for customers support our plans to grow net lending further as we move towards our £4,000,000,000 ambition. It also reduces the pricing pressure in the savings market. Having been confident that the team's track record and agility leave the group well placed to capture the market opportunities ahead.

Operator

We're a focused specialist lender and have made significant progress in recent years. We are approaching our £4,000,000,000 net lending target that supports an attractive return on capital. Our return on average equity improved to 9.6% in the first half of the year, and excluding vehicle finance the core businesses generated a 13.7% return. Our growth plan has been executed effectively in recent years and as a result net lending has grown by 1,500,000,000 or 62% since the 2020. We have further growth potential available to us in large addressable markets and this was validated again during our recent strategy review.

Operator

We've also been able to support our lending growth by extending our range of savings products to serve a broader range of customer needs. Total deposit balances have grown by £1,500,000,000 also, or 76% since the 2020. We have a track record of managing our costs effectively in support of our financial targets. Further efficiencies have been delivered already this year. As a result we will deliver our £8,000,000 annualized cost savings target by the end of this year.

Operator

Our track record provides the confidence in our ability to remove £25,000,000 of costs in the coming years following decision to make a strategic pivot away from vehicle finance. The cessation of new lending and vehicle finance will bring significant benefits to our future operational and financial performance. Our strategy refresh will deliver an enhanced return on capital beyond our current target of 14 to 16%. Our core purpose is to help more consumers and businesses fulfill their ambitions. This provides clarity of direction and is a common focus in each of our businesses, even though we operate in diverse specialist lending segments.

Operator

You can see that by focusing our efforts on helping customers, each of our businesses have continued to grow over the last three years with higher growth rates in our consumer businesses. Lending to consumers currently represents 52% of net lending. This mix will obviously evolve following the decision to stop new lending vehicle finance and manage a run off of that portfolio. Across all our lending businesses and our savings product lines, we've delivered on our commitment to significantly scale the group. Let me call out some key highlights from our half year performance.

Operator

Lending balances grew to £3,800,000,000 an increase of 6.1% since the 2024, and excluding vehicle finance they grew by 7.3%. The rate of lending growth was materially higher than the 3.2% growth delivered in the 2024. Deposits from customers grew to £3,500,000,000 an increase of 8.2% since the 2024. We grew our deposits at a faster rate than lending to continue early repayment of TFSME funding that was due to be repaid in the 2025. I am pleased to report that that funding was paid in full during the first half of the year.

Operator

Our net interest margin improved to 5.4% from 5.3% at the same point last year, and our risk adjusted margin was stable at 4.1%. Reflecting disciplined management, operating costs increased by just 1.2%. This supported a significant four sixty basis points improvement in our cost income ratio to 49.1%. On the back of strong lending growth, disciplined cost and margin management, our adjusted profit before tax of 23,300,000.0 was 36.3% higher than for the first half of last year. Our return on average equity as mentioned earlier improved to 9.6% and the return excluding vehicle finance was 13.7%.

Operator

The board has approved an interim dividend of 11.8p per share in line with our progressive dividend policy. We continue to show positive progress towards achieving our current medium term targets. The bar chart shows the progress on each of these over recent years, including the year on year comparison for the first half. The first chart demonstrates the progression in scaling our lending businesses towards our £4,000,000,000 ambition, which is now achievable in the near term. As we simplified the group and focused on increasing of lower risk consumer lending, we planned for our net interest margin to settle around 5.5%.

Operator

It has remained stable over the last few years as we maintained our pricing discipline, and at the half year improved to 5.4% compared to the first half of last year. This is a really strong performance considering the rate of lending growth we've delivered. I've already commented on the further improvement in our cost income ratio in the first half to 49.1%, and you can see the improvement over a longer period of time in the middle chart, the ratio having peaked at just over 60% in 2021. As we continue our growth trajectory and maintain focus on minimising cost growth, we remain extremely confident in delivering our target of 44 to 46% against a 4,000,000,000 loan book. We will see further progression in our return on average equity going forward and this remains our key financial priority.

Operator

We are confident we will deliver 14 to 16% returns in the near term. We were capital accretive in the first half of the year. At 12.6% our CET1 ratio remains comfortably ahead of our own target to remain above 12%, and ahead of our minimum regulatory requirement of 9.6%. Rachel will share further detail on our capital ratios in a later slide. As shown on the bottom half of the slide, we are clear on how we unlock our current target for returns.

Operator

That requires a £4,000,000,000 loan book, stable cost of risk, mix and funding cost movements supporting the net interest margin, and proactive management of our costs. The cost of risk was stable year on year for the first half, although higher than our through the cycle expectation. Rachel will comment further on that. Overall, based on the track record of recent years, we remain confident in continuing to grow and in delivering against our current target returns in the near term. Now let me hand over to Rachel to go through the financial review section.

Speaker 1

Thanks David and good morning everyone. I will start with a brief overview of the income statement on slide 10. At a headline level, we have delivered 36.3% increase in adjusted profit before tax compared to the 2024. As you've heard from David, we have made further progress towards achieving our £4,000,000,000 net lending target, with average net lending balances increasing by 10.3%, delivering very strong operating income momentum, up 10.6% in comparison to the 2024. Cost discipline has always been a focus for us and we've been effective in delivering year on year reductions in our costincome ratio.

Speaker 1

Operating costs in the 2025 increased just 1.2% in comparison to the same period in 2024, demonstrating our ability to contain cost growth while continuing to grow the balance sheet. Cost of risk remained stable in the period at 1.7%. Retail finance was impacted by non recurrence of one off model enhancement benefits in the 2024, and vehicle finance benefited from the reduction in the level of defaults and impairments as the impacts of BIFID review abated. Net interest margin also improved to 5.4%, a 0.1% improvement on 2024 half year position, and adjusted return on average equity improved by 2.3% to 9.6%. Statutory profit before tax at £22,300,000 was up 30.4% on the same period last year.

Speaker 1

As I mentioned, group NIM improved by 0.1% to 5.4%. This improvement was delivered by retail finance NIM increasing to 7%, up 0.4 on half year twenty twenty four due to the falling yield curve and contractual re pricing lag. This however was offset by vehicle finance NIM decreasing to 9.2%, down 0.3% due to business mix on average net lending balances, and importantly, a 0.6% reduction in cost of funds as base rates reduced, with a June exit rate at 4.7%. We have contained our absolute cost growth to 600,000.0 in the period, which coupled with a 10,200,000.0 increase in operating income, drives an impressive 4.6 percentage point reduction in our cost to income ratio to 49.1%. As I've mentioned before, one of the key drivers of meeting our medium term target of a return on average equity in the mid teens is by delivering growth in income whilst keeping cost growth lower, I.

Speaker 1

E. Widening the jaws. As you can see from the chart on the right, we have continued to improve our jaws over the last year from 4.3 percentage points at half year 2024 to 9.4 percentage points at half year 2025. Organizational changes in quarter four twenty twenty four delivered 1,500,000.0 of additional savings and we are on track to reach our Project Fusion upgraded target of £8,000,000 by the end of year end 2025. Cost of risk remained stable in the period at 1.7%.

Speaker 1

Retail finance cost of risk at 1.4% represents a more normalized level than the 0.7% reported in the 2024, which benefited from non recurring model enhancements. Fecal finance cost of risk at 5.6% fell considerably from the high of 8.8% in the 2024, which was impacted by the elevated levels of defaults and impairments due to the BIFID review. There are two legacy cases in real estate finance that resulted in a 0.2% increase in cost of risk, however, they are both close to resolution. Overall coverage ratios at 2.7% decreased by 0.3% on full year 2024, largely driven by the sale of twenty five point eight million pounds of vehicle finance legacy defaults, offset by new business provisions of eight point two million and zero point nine million due to worsening economic forecasts. As I'm sure all of you are aware, the Supreme Court has ruled that the relationship between a motor dealer and a customer is not a fiduciary nature, and the payment of a commission to a motor dealer is not deemed as a bribe.

Speaker 1

However, the Supreme Court did uphold that in the case of Johnson, the commission paid was unfair after considering the specific circumstances of that case. Although the Supreme Court provided some additional clarity, the scope and design of any potential redress and associated costs are yet to be fully provided by the FCA, which will be consulted on in October 2025 and finalised by the end of the year. We have continued to use probability weighted scenario analysis using the new information from the Supreme Court and the FCA statement, and have concluded that any changes to the provision are unlikely to be material. At a summary level, the balance sheet grew with total assets increasing by 4.2% in comparison to the position at the 2024, driven mainly by an increase in loans and advances to customers of 6.1%. Deposits from customers have grown by 8.2% to fund growth and to replace TFSME funding.

Speaker 1

Linked to that, wholesale funding decreased by 29.8, driven by the full repayment of TSME, which was partly replaced by a mixture of Bank of England long term repo funding and deposits from customers. Shareholder equity increased by 3.8% to 374,100,000.0, and tangible book value per share increased by 3.9% to £19.37 Net lending grew by 6.1% to £3,800,000,000 Growth was delivered across three of our four divisions, with retail finance growing 5.8% in the half, as we continue to grow our market share, up 1.7% reflecting the continued growth in our key furniture and jewellery sectors, and the seasonal season ticket loan sector. Real estate finance growth of 7.9% in the half, and this was focused on our residential investment product. Commercial finance also grew by 10.7% in the half, reflecting strong new business in quarter one. Vehicle finance declined by 0.3%, reflecting the decision to cease lending into the prime product in early twenty twenty five.

Speaker 1

But overall, the mix of the portfolio remains balanced. We were capital accretive in the first half, with a CET1 ratio increasing to 12.6%, with 60 basis points of capital generated from underlying retained earnings, offset by dividends and RWA growth of 30 basis points. Our capital ratios remain significantly above the regulatory minimums, with headroom to support planned growth. Total funding increased by 4.3% in the half to support the growth in lending, with retail deposits growing 8.2% in the period, mainly through growth in our fixed term ISA products. We fully repaid TFSME following accelerated payments, and as mentioned earlier, this was funded by a combination of retail deposits and ILTR.

Speaker 1

All our regulatory metrics remain strong and significantly in excess of our regulatory minimas. Profit before tax pre impairment in retail and vehicle finance grew 2339% respectively, reflecting significant increases in average lending balances in both divisions. Increased NIM in retail and good cost control in both divisions. Impairments in consumer at a total level were materially flat half on half, with an increase in retail as a result of the non recurring IFRS nine model changes in half twenty twenty four not repeating, and in vehicle finance a significant improvement in default rates and impairments as the impacts of BFID abated in 2025. Overall, retail finance delivered a 6.8% increase in PBT and vehicle finance reduced its loss from £12,500,000 in the 2024 to £4,500,000 in the 2025.

Speaker 1

In real estate finance, operating income was relatively flat, with the increase in average lending balances being delivered through lower margin residential investment. Impairments were impacted by the two legacy cases, which are now close to resolution. PBT therefore reduced half on half by £2,000,000 but mainly driven by those increased impairment charges. In commercial finance, PBT reduced half on half by 1,400,000.0, mainly driven by a 3.3% reduction in average lending balances in the period. Central loss before tax was flat half on half.

Speaker 1

We recently announced our decision to pivot away from vehicle finance, and the group has since stopped new lending and put the existing book into run off. This table highlights the half year twenty twenty five results on a core basis, I. E. Excluding vehicle finance. PBT would have increased to £27,800,000 risk adjusted margin would increase to 4.2%, costincome ratio would improve to 46.5% and importantly, return on average equity would be 13.7%.

Speaker 1

It is anticipated that more than £25,000,000 annual costs can be removed by 02/1930, of which approximately 65% delivered by 2027. The average loan length outstanding at thirtieth June twenty twenty five was 37, and using contractual amortisation and observed customer behaviours, we expect a fifty-fifty 5% reduction in the book by the 2026. Capital will become available as the book reduces and this will be redeployed to support growth in our core businesses. Let me now hand back to David to take you through the strategic review and the outlook for the rest of the year.

Operator

Thank you Rachel. As you know, we have a clear vision, purpose and strategy. We refreshed the articulation of our strategic priorities in 2023 as part of our Optimising for Growth strategic framework, and we remain focused on continuing to simplify the group and our operations, enhance the customer experience and leverage our distribution networks, all enabled by our technology capabilities and platform. We have made further progress against those priorities and some examples are shown for each on the slide. Our decision to move away from vehicle finance as part of our broader strategic refresh will allow us to simplify the group even further.

Operator

This follows the organization redesign work implemented at the end of last year to consolidate all our IT operations and change teams under the group's Chief Operating Officer. Those changes supported a simpler and more cost efficient structure and removed duplication. As a result we're on track to deliver our £8,000,000 of annualized cost savings from Project Fusion, our cost optimization program, by the end of this year. The sale of our former head office building in Solihull was also completed in March and further simplifying the property estate we occupy and manage. We see our digital platforms as a route to delivering improved customer experiences and further cost efficiencies.

Operator

Our customers have continued to adopt a more digital first approach. Just over six months since launch, more than 250,000 Retail Finance customers have registered to manage their Retail Finance account on our R2B mobile servicing capability. 90% of our applications for a new Retail Finance loan were auto decisioned within six seconds, providing the necessary resilience and speed of decision required by our retailer partners. 98% of our savings customers are registered to use online banking, and now over 30% have registered for our mobile banking app. We've made it easier for savings customers to perform internal transfers and provide maturity instructions in online banking.

Operator

By simplifying our processes we reduced the need for manual intervention by our customer service team. 76% of all maturing savings term deposits were attained during the period. In Business Finance, our commercial team was recognised again as the asset based lender of the year at the Real Deals Private Equity Awards, validation that we continue to deliver a positive experience for our client base. The group's success is built on the importance of strong relationships with business partners, and we've continued to develop those. In our core businesses we work with retailers, football clubs, ticketing platforms, private equity groups, accountants and professional advisory firms.

Operator

We saw an increase in our new business market share in retail finance, which grew to 17.3% as we continue to support over 1,000 partners. Our stock funding dealer relationships increased to four thirty seven in the period, and as part of our run off activities we're now supporting those clients to find alternative funding arrangements. We've seen the level of repeat business in our real estate finance business improve, as clients increasingly recognize the benefits of our specialist relationship approach, and this supported a 7.9 increase in net lending in the first half. And in commercial finance, continue to support our existing clients and business introducers in what has been a challenging environment. After what was a quieter eighteen months across 2023 and 2024, net lending increased by 10.7 in the first half.

Operator

So further progress delivered across each of our strategic pillars. This is my last set of results prior to returning from the group, and so I want to briefly reflect and comment on what the team has achieved during my tenure. We've transformed the group from what was previously a large number of very diverse federated businesses. The changes we have implemented have resulted in us being a more focused specialist lender, with a clear purpose to help more consumers and businesses fulfil their ambitions. We've been more proactive in communicating our own ambitions to the market, and have stuck to those commitments despite the volatile political and economic environment, the cost of living challenges, and interest rates being much higher in recent years than we'd initially expected.

Operator

We've introduced significant changes to our operating model, centralizing IT operations and change functions, and that has allowed us to streamline activities, remove costs and prioritize more effectively. The team has delivered a significant improvement in cost efficiency as we have scaled our lending in a smaller number of businesses, with our cost income ratio now at 49% from just over 60% in 2021, and moving towards our target range of 44 to 46%. Project Fusion and the focus that program brought, embedding a more cost conscious culture, was a key enabler. Our optimizing for growth strategic priorities were defined and these continued to guide our actions to simplify the group, enhance customer experiences and expand and leverage our distribution networks. The growth opportunities we have consistently highlighted for each of our specialist lending businesses has been captured by our specialist teams, and we're nearing our current £4,000,000,000 net lending ambition, having grown by 62 since the 2020.

Operator

As shown in this morning's presentation, we're now delivering an improvement in returns and are positioned to deliver further sustainable improvements following our decision to stop new lending and vehicle finance. Our tangible book value per share has increased by 33 since the 2020 to £19.37 Despite continuing to trade at a significant discount, it is pleasing to see the share price start to recover following the roller coaster ride of economic, legal and regulatory uncertainty in these last few years. With so much having already been achieved, what about the outlook for the group? Well, there are exciting opportunities ahead to drive even more ambitious outcomes. Our focus on growing net lending in our core businesses will continue in what are large addressable markets, as will driving further operational efficiencies now that a more cost conscious culture is embedded.

Operator

We've recently completed our group wide strategy review, with the first decision to pivot away from vehicle finance having been made, announced and now being implemented. The run off of that business, which continued to lose money in the first six months of this year, will allow for £25,000,000 of costs to be removed and will support a further improvement in cost income ratio and enhanced returns to be delivered. In the first half of this year, the core businesses, so excluding vehicle finance, delivered a cost income ratio of 46.5% and a return on average equity of 13.7%. During our strategy review, we also identified and validated new growth opportunities within our high returning retail finance, commercial finance and real estate finance businesses. Detailed plans are now being refined to invest more in those businesses, as capital is released from the reducing loan book in vehicle finance.

Operator

With the further simplification of the Group, the EFAS strategy will enhance the Group's returns above the current 14 to 16% target range in the coming years. Full details of those growth plans and the Group's fresh ambitions for 2026 and beyond will be shared at the Capital Markets event during quarter four of this year by my successor Ian Caulfield and Rachel. It's been a pleasure to partner with Rachel and my other executive colleagues, and to have received such unwavering support from colleagues across the group. I'd like to thank them all for that support. I wish Ian every successful role, and look forward to him and the team leading the group to further success during the next chapter of the group's strategic development.

Operator

We'll now open up for questions.

Speaker 2

Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. And please make sure the malfunction on your phone has switched out to allow your signal to reach our equipment. And our first question is from Alex Bowers from Berenberg. Please go ahead.

Speaker 3

Good morning, Alex. Just had a couple of questions. If I may. Just firstly on net interest margin. You reiterated sort of above 5.5% target.

Speaker 3

I'm just interested to hear kind of what you think the evolution of NIM looks like as the vehicle finance wind down and you start to reallocate capital in some of the other parts of the business? That's my first question. Secondly, just following your H1 cost growth at 1% year on year, you're kind of guiding, I guess, to sort of 5% a year in the medium term. But again, it'd interesting to understand what the kind of cost profile looks like over the next couple of years. Should we expect it to kind of normalize back by 5%?

Speaker 3

Or is it sort of a gradual tick up towards that number? And then just lastly, on the sort of digital capabilities, interested to hear more about the Apps Pay piece and the sort of $2.50 ks class and is currently using it. Are there more customers that can be on boarded there? Are there sort of potential automation or cost savings that come through from more people using that product? Just interested to hear more about it.

Speaker 3

Thank you.

Speaker 4

Okay, thanks for the questions, Alex. Actually, I'll take the last one first and then I'll pass over to Rachel for the questions on NIM and cost growth. The app to pay functionality, we have evolved to be a sort of mobile servicing platform for our retail finance customers. So there are about 1,100,000 customers within retail finance. Many of them, as you know, about 86% already use an online banking portal to service their account, check their balance, make payments.

Speaker 4

We introduced the App2Pay mobile banking servicing app in December. That is where we have seen a quarter of a million customers register for that service. And already actually in that first half of the year, instructions or payments being made by customers are higher from the 250,000 people in the mobile banking app than in the online facility that's available to them. So I think there is further opportunity clearly for penetrating more of the 1,100,000 customers. And the reality is, as ever, that just drives further digital adoption, better customer experience and should help on cost effectiveness as well.

Speaker 1

Yes. Thanks, Alex. Just on NIM, your point around vehicle finance rolling off. Yes, we would expect NIM to come down as we roll the vehicle finance portfolio as that's our highest yielding product. I think we will come out with Capital Markets Day at the back end of this year where we hope to give you more information about what we think the next three years will look like in terms of guidance, but it definitely probably will not have a NIM of 5.5 with the portfolio that we are likely to have going forward.

Speaker 1

I don't expect it to be lower than five, but we are going through the full analysis and budgeting for the next three years currently. So yes, it will come down. We probably won't have the medium term target of a NIM either, we probably will focus on smaller set of targets, ultimately returns, which is what is important to us and to our shareholders. On cost growth at 1% this year, I think we have had obviously the benefits of the organisational changes that we did at the back end of last year coming through in 2025, that is not going to repeat into future years. So I think the 5% that we've had is still a valid set of targets in terms of how we'd want to keep costs down.

Speaker 1

But I think 2025 will be an anomaly in the sense that we've got the benefits of that organizational changes that we made at back end of quarter four coming through for the full year of 2025.

Speaker 3

Brilliant. Thank you very much. And thank you, David, for your time over the last few years. Best of luck in the future endeavors. Thanks.

Speaker 4

Okay. Thank you, Alex.

Speaker 2

Thank you. And our next question is from Mike Trippett from Progressive. Please go ahead. Your line is open.

Speaker 5

Thank you, David. Rachel, good morning. Just coming back to this point about capital generation and capital accretion, which is I think is a very powerful point. Just one small thing, just looking at the sort of first half growth in RWA, it's quite low against the loan book. Is there something there that was anomalous?

Speaker 5

And just could you give us sort of view of RWA growth going forward, whether there's any change there? And I was also just wondering about overall capital structure. As you generate this additional capital, would you seek to gear up in some way? You issue a bit more Tier two or additional Tier one? Is that in your thinking at the moment?

Speaker 1

Thanks Mike. Yes, it's great to be in a position where we've got capital accretion as we have been consuming our capital as we have been growing in previous periods. The RWA growth is more muted and that is really a mix. So there was a lot more of the residential investment product were low RWAs. You appreciate that we have quite a wide range of RWAs across the portfolio from 35 all the way up to 150.

Speaker 1

So that's the main reason for that slightly lower growth as you look at the results. In terms of capital structure, we have Tier two out there at the moment, it is not being fully utilised so we wouldn't be looking to raise more Tier two currently. And in terms of AT1, yes we would be able to put that into the capital stack but the current price on it probably is still prohibitive for us. And we are happy with where we are in terms of our Tier one. We will continue to manage that carefully.

Speaker 5

Okay, very clear. Thank you.

Speaker 2

Thank you. And it appears there are currently no further questions in the phone queue. This I'd like to hand over for any webcast questions.

Speaker 6

Thanks very much, Sergey. We've had a number of questions through the webcast. Just a reminder, if you'd like to ask a question, do so by using the toolbar at the bottom of the screen. First question is, how will the chancellor's changes to the cash ISA impact your customer deposits?

Speaker 4

Yes, listen, we don't see, given the scale of the market, I I think we have a on the slide, slide four or five, shows you the size of the household deposit market of 1,500,000,000,000 So we don't see any change having a significant impact on us, there's changes to limits or whatever. Mean, clearly, this is something we always keep an eye on. But the reality is we just need to generate the funding from some other sources. And based on where the pricing dynamics are currently, that would have a nominal impact on the cost of our retail funding. So something we'll continue to keep an eye on.

Speaker 4

We prefer that the existing structure was retained, but nothing that would prevent us from continuing to grow our deposit.

Speaker 6

Thank you for that. Next question. Whilst I appreciate that you won't know precisely what the impact on the ruling on commissions will be until the FCA makes its decision, but can you give a bit more color on what your current thinking is on this and how your provisions might be affected under certain scenarios?

Speaker 4

Yeah, well, listen, I think first thing to say is we were pleased as a lender, but also as an industry, the Supreme Court decisions and the judgment on the August 1. Clearly the FCA then made a statement on the August 3, which had a range of potential industry outcomes for potential redress. It's quite hard to be able to get underneath the skin of how were those constructed. So no doubt that will be clarified by the FCA later in the year. But from our own perspective, the judgments and the decisions from the Supreme Court gave us a bit more certainty in terms of where we have operated historically.

Speaker 4

And as a reminder, we have had a very low level, 4%, as we've indicated previously, of discretionary commission arrangements. We stopped using those structures back in 2017, almost April before the FCA banned their use. And we've never had, as was the case in one of the in the case that was upheld by the Supreme Court, any preferred lending terms and arrangements in place. So that has led us to the detail that Rachel went through, that with looking at the re weighting of the scenarios, it led us to believe that there is no material change expected in the provision. So that still remains in place.

Speaker 4

Clearly we will need to reassess that later in the year when there is further clarity from the FCA. But our view seems to be very typical of everyone else who has had a previous provision have not changed it, and even some who have never raised a provision yet have still to raise one. So we're comfortable with our position.

Speaker 6

And the next question that was submitted through the webcast is how sustainable is your rate of loan growth from here?

Speaker 4

Well, that's another one that Rachel referred in answering to an earlier question around the fact that there will be a defined set of financial targets that will be set out for the medium term at the Capital Markets event later in the year. So we'll I think the key thing to see on growth is that, having just gone through your strategy refresh, it has validated actually that in our three remaining specialist lending businesses, these are very large markets where we've performed well, but we've still got significant further opportunity to grow. So we will still be a growth story. It will just be to another set of businesses, and those are higher returning businesses, which will give a much better outcome for the group.

Speaker 6

Superb. We have got no further questions at the moment. David, maybe if I hand back to yourself for any closing remarks that you have.

Speaker 4

Okay, thank you. And thank you for all of those questions. I would just like to reiterate a few points before we close. Our specialist teams have done a fantastic job in driving growth in each of our lending businesses, and we're nearing our current £4,000,000,000 net lending ambition in the near term. The team has also delivered a significant improvement in cost efficiency and profitability.

Speaker 4

As a result, we delivered improved returns in the first half of the year and were capital accretive. The decision to stop new lending in vehicle finance will support a further sustainable improvement in returns going forward. There are exciting opportunities now and plans being defined for the next stage of our strategic development, and the details of that will be shared at our Capital Markets event in Q4, as we've mentioned. I wish Ian, Rachel and the whole team at Secure Trust Bank every future success in implementing the fresh growth initiatives that we have agreed. Finally, I would also just like to thank you for joining myself and Rachel for the presentation this morning, for your questions and for all of our interactions over recent years.

Speaker 4

So thank you for all of that and have a good day.

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