Secure Trust Bank

Investment summary

STB’s FY18 trading update in January was encouraging, indicating that it expects to deliver results in line with management and market expectations. The bank feels vindicated in its earlier decision to reduce risk in the loan book with improved credit quality supporting profits. Reflecting continued competitive margin pressure in residential mortgages management has proposed a stop on new business until conditions improve, potentially when the regulatory playing field becomes more level from 2020. This decision is not expected to impact 2018/19 earnings materially. Otherwise STB’s loan momentum remains strong: loans exceeded £2bn at end FY18 (vs £1.6bn 2017), similar to our forecast. The growth is being driven by retail finance, motor finance (where they have migrated from sub-prime to near-prime, a larger target market) and SME lending (mostly invoice financing).