Abbey cuts back on fixed-rate lending: Bank unable to support 18.5 per cent share it built by active marketing

Click to follow
The Independent Online
ABBEY National is reining back its expansion into fixed-rate mortgages, which made up two-thirds of all the bank's lending in 1993.

Lord Tugendhat, Abbey National's chairman, said the bank would not be aggressively seeking market share this year through fixed-rate lending, as he announced a rise in pre-tax profits of a quarter to pounds 704m.

Abbey raised its final dividend by 22 per cent as profits from treasury operations increased by nearly a half to pounds 145m, reflecting a growth in investment assets of 28 per cent.

Peter Birch, chief executive, said that Abbey National had raised its share of the UK mortgage market in 1993 to 18.5 per cent by active marketing of fixed-rate mortgages, which made up 64 per cent of gross lending during the year.

The bank would not be able to afford this level of share for long, he said, and he expected its share to fall back to 12 to 14 per cent in 1994. But Abbey's aggressive expansion into fixed-rate mortgages was not storing up problems for the future, he stressed. Every application had been credit-scored and advanced treasury procedures had been used.

Mr Birch said the payout of 14p was justified because the bank performed well in 1993 and expected another good year, with falling provisions and the UK mortgage market forecast to rise by 10 per cent.

Abbey's share of the saving market rose from 5.1 to 7.8 per cent although the market was smaller.

The two black spots were a pounds 105m loss on Continental operations, mainly due to the French property crash, and a final, exceptional pounds 30m charge made for the disposal of the Cornerstone estate agency chain, sold in 1993.

Lord Tugendhat said that the bank's expansion in France, Spain and Italy made sense at the time, but that keeping the French division's commercial lending had been a mistake. Abbey National stopped all such lending two years ago, and the chairman said provisions would be substantially lower this year. Overall provisions fell by a fifth to pounds 218m.

Mr Birch forecast that Abbey's life business would grow very substantially this year as it did in 1993.

Abbey National Life, which sells products only through the branches, generated pounds 145m of new business premiums in its first 11 months of trading. The bank's other life operation, Scottish Mutual, sells through independent financial advisers and increased its profit from pounds 39m to pounds 61m.

(Photograph omitted)