TSB profit soars to £237m, but deposits fall to £35bn

TSB CEO Robin Bulloch

TSB has reported a statutory profit before tax of £237.2 million for 2023 — an increase of £53.7 million or 29.3% on 2022 – and will increase its proposed dividend to Spanish parent firm Sabadell to £120 million from £50 million in 2022.

The bank said the main driver of performance was higher income which rose £50.5 million or 4.6% to £1.158 billion “primarily reflecting the impact of the higher interest rate environment, partially offset by lower mortgage margins in a highly competitive market.”

Net interest margin reported was 2.75%, up 18bps on the previous year.

However, TSB’s credit impairment charges rose £13.4 million or 24.4% to £68.3 million, its total customer lending fell £1.8 billion or 4.7% to £36.2 billion, and customer deposits fell £1.6 billion or 4.3% in 2023 to £34.8 billion.

TSB CEO Robin Bulloch said: “We are reporting another year of sustained profitability, demonstrating the impact of both our continued focus on customers, delivering products and services that genuinely meet their needs, and the work to make TSB a simpler, more efficient, and resilient bank.”

The bank’s operating expenses decreased marginally by 1.9% to £852.9 million, though 2022 included the impact of the regulatory fine of £48.7 million relating to TSB’s 2018 IT migration problems.

“Excluding this, the resulting increase of 3.9% reflects not only inflationary impacts but also an additional provision for a programme of strategic cost saving initiatives (c.£29 million) which will reduce costs from 2024 onwards,” said TSB.

“TSB’s cost-to-income ratio (statutory basis) is 73.6% (2022: 78.5%) as we continue to drive further efficiency and simplify our processes for customers and colleagues.

“Credit impairment charges rose by £13.4 million (24.4%) to £68.3 million this year (2022: £54.9 million), reflecting the uncertain economic outlook, the higher interest rate environment and increasing inflationary pressures on our customers. In addition, the 2022 charge benefitted from Covid-19 provision releases.

“Total customer lending decreased by £1.8 billion (4.7%) to £36.2 billion year-on-year (2022: £38.1 billion), mirroring the slowdown in the UK mortgage market, where applications in 2023 were c.27% lower than the previous year.

“Customer deposits reduced by £1.6 billion (4.3%) in 2023 to £34.8 billion (2022: £36.3 billion), primarily driven by lower personal current account deposits.

“Customers moved their balances towards higher interest-earning savings accounts, and increased spending levels were observed, likely in response to cost-of-living pressures. TSB increased savings balances by 1.7% in 2023.

“The balance sheet remains resilient with a Common Equity Tier 1 ratio of 16.7% and Liquidity Coverage ratio of 203%.”

In its outlook, TSB said: “The policy rate is widely thought to have peaked at 5.25%. Forward rates imply there will be rate cuts this year, though the cost of borrowing will rise for many households in 2024, as they refinance expiring fixed-rate mortgages.

“The mortgage market was very weak in 2023, but we’re seeing positive signs of recovery in the new year as mortgage application volumes are increasing.

“The outlook is uncertain though our forecasts assume the risks are skewed to the downside. TSB’s scenarios explore many risks, including the possibility that unemployment – which remains low by historic standards – rises more steeply than expected.

“TSB is well placed to support its customers against this economic backdrop. The business has a robust capital and liquidity position, and a strong focus on serving its customers and delivering its ever more relevant Money Confidence purpose.”