OneSavings Bank was created through the purchase of the Kent Reliance Building Society by the renowned financials-focused U.S. private equity fund, J.C. Flowers & Co. KRBS was the only UK-based building society to move its back-office totally offshore, the cost-to-income ratio is rock bottom as a result. Despite this huge advantage and the rapid growth we have seen, there are a few questions about provisioning in the back book and reliance on the BTL market. Without a clear view of how sensible management is, this is just too close to call.
What does OneSavings Bank do?
OneSavings Bank is predominantly a mortgage lender with a small consumer loan book in run-off bought from Northern Rock.
85% of Group net interest income comes from the mortgage divisions. As with Aldermore, we get a split between SME and Residential business. Residential only includes owner-occupiers so this definition is slightly more intuitive and offers a clearer picture of where this business is making money.
Net Interest Margin: Breakdown by Division
OneSavings Bank doesn’t break down these numbers specifically in their reports. Net interest margin is reported at 2.9% at the Group level so there is clearly some discrepancy between the numbers I have lifted and how it is calculated.
The BTL loan book is the largest division at OneSavings and was the only source of growth through the year. It is an essential division.
The net interest margin looks pretty decent here, I suspect that the “real” number is somewhere under 3% and this compares pretty favourably to what we have seen at Aldermore.
Unfortunately, OneSavings offers the least disclosure into what the assets underlying the portfolio might be. Given the significant growth in this division this is an oversight on management’s part. The company reports that there is commercial and residential property but what is the split? However, we do know that there is a “problem” portion of the loan book that was inherited from Kent Reliance Building Society, the company’s main BTL lending brand. More on this later.
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