Secure Trust Bank is a well-established specialist bank addressing niche markets within consumer and commercial banking. It is launching a non-standard mortgage business. Former parent Arbuthnot Banking Group’s shareholding is now less than 20%.
Secure Trust Bank’s (STB) FY19 figures were good, as already flagged in its trading update. Underlying ROE was 14.0% (FY18: 12.8%), EPS was up 10% y-o-y and capital remained comfortable (CET1 12.7%). However, the COVID-19 pandemic has led to a significant drop in business activity and impairments are expected to increase. STB has suspended forward guidance since March due to uncertainty. Its relatively short duration loan book, already cautious lending stance and good capital position should help. Financial markets turmoil has the bank trading on a 2019 P/BV of 0.6x despite a track record of delivering value creating ROE above its COE.
STB’s relatively short loan book duration allows it to de-risk quicker and protect capital and maintain liquidity. But impairments will inevitably rise and loan book shrinkage also adversely affects results. The bank now is focused on managing the risks and supporting clients. Management believes merger and acquisition opportunities may exist as the economy emerges from the crisis. Operationally speaking, the bank can increase lending fairly quickly as the economy improves. The key challenge will be assessing the new lending conditions and risk parameters in the recovery phase.