(Adds CEO, analyst comments; updates shares)
By Noor Zainab Hussain
Sept 26 (Reuters) - British lender Close Brothers Group said its banking business would face challenges due to a “highly competitive” environment, prompting analysts to warn that loan growth would be limited and net interest margin could be pressured.
Shares of the company fell as much as 9 percent in morning trading on the London Stock Exchange.
“The competitive environment (in banking) remains challenging for some of our businesses, and we continue to monitor market conditions carefully for any change in demand or credit performance,” the company said on Tuesday.
“The UK motor finance market remains highly competitive and we continue to prioritise margin and credit quality,” it added.
However, the merchant banking group, which provides loans and wealth management and securities trading services, reported a 13 percent rise in adjusted operating profit for the year ended July 31, driven by strength in its banking, asset management and market making divisions.
“Our businesses that are most exposed to a very competitive dynamic at this point in the cycle would continue to focus on returns and underwriting standards rather than growth - that would be true of motor and asset finance,” Chief Executive Preben Prebensen told Reuters.
Jefferies analyst Phil Dobbin said the lender’s focus on maintaining its net interest margin (NIM) would limit loan growth.
Close Brothers reported a fall in full-year NIM to 8.1 percent from 8.2 percent.
“We expect further moderation in the net interest margin through our forecast horizon,” said Liberum analysts, who rate the stock “hold”.
Adjusted operating profit at the banking division rose 9 percent to 243.5 million pounds ($328.04 million), helped by property finance.
“We are focused on new house building at a price point where on average the units we finance sell for about 500,000 pounds and that is a very strong part of the market,” Prebensen said. “We are not particularly exposed to very expensive Central London, foreign purchases and areas that have been affected by stamp duty,” he added.
Meanwhile, profit jumped 47.9 percent at Winterflood, Europe’s largest market maker, helped by high levels of retail trading activity.
Greater market volatility tends to bolster profits at firms such as Winterflood as investors turn portfolios around more frequently.
“It was a combination of the indices reaching record highs and also a number of political events,” Prebensen said.
“It began with the Brexit vote and continued with Trump’s election victory, the triggering of Article 50.” ($1 = 0.7423 pounds) (Reporting by Noor Zainab Hussain in Bengaluru; Editing by Amrutha Gayathri)