ABG’s income has been driven by the way in which it has managed its franchise – specifically, building a relationship bank with less price-sensitive deposits. Spreads have widened in a rising rate environment, despite ABG offering competitive rates to its relationship customers, and group operating income increased by 51% on 1H’22. Margins may have peaked now. We previously expressed the view that, if the base rate were sustained at 4%, or higher, there could be marketwide credit issues. The very early signs of this are now evident. However, ABG’s conservative approach, with its low LTVs, good-quality security (primarily residential real estate) and stress testing curtailing lending, means it is positioned well.
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