The Co-operative Bank reported an operating profit for the first time since 2013 but made an overall loss before tax of £140.7m. The £14.7m operating profit represents an improvement on the operating loss of £84m in the previous year.
The bank was rescued by US hedge funds in 2017 after revealing a capital shortfall of £1.9bn. The Co-op Group sold its remaining stake in the bank in 2017. However, the bank is still in the process of separating from the Co-op Group’s IT system, which increased exceptional costs for the business in 2018.
Operating costs reduced by 13% to £374m while total investment spend of £112.9m increased by £39.8m compared to 2017 as a number of strategic initiatives progress, including the IT separation due to be completed this year.
Chief executive Andrew Bester said political uncertainty and intense competition had created an “extremely challenging banking environment”. He added the bank had made “sizeable progress” in its transformation by recording an operating profit for the first time since 2013.
He said: “While our on-going investment in transformation means continued losses overall, this is nevertheless an important step towards achieving our goal of sustainable profitability.”
The Bank has been selected to be part of the Incentivised Switching Scheme, which commenced in February 2019. The initiative provides funding to challenger banks to incentivise RBS’s Williams and Glyn SME banking customers to switch their business current accounts.
The organisation reported a net customer redress charge of £31.7m from £27.4m the previous year, which, it said, was driven primarily by sustained levels of Payment Protection Insurance (PPI) activity. This loss affected the bank’s CET1 ratio, which reduced to 22.3% (2017: 24.7%) but remains above other banks’ capital ratios.
Mr Bester added: “We have one of the strongest CET1 ratios amongst challenger banks and a significantly de-risked balance sheet. This has provided us with the platform to reinvigorate our retail and SME banking businesses driving positive net mortgage lending of £1.4bn and our highest year for mortgage completions since 2010. Our digital transformation progresses well and we continue to look to service the needs of our customers better.
“Developing our SME banking business is a key priority for the future and we are pleased to be part of the Incentivised Switching scheme for Williams and Glyn customers. We believe our brand and track record in this market make us an attractive choice for SMEs looking for an alternative to the ‘Big Five’ banks and we are determined to help drive deeper competition in this market.
The bank witnessed a decrease in the number of current account holders from 1.4m in 2017 to 1.3m in 2018, which, it said, was mainly driven by a reduction in dormant accounts. Mortgage net lending increased from £0.1bn in 2017 to £1.4bn in 2018.
Mr Bester said: “In a market that lacks distinctive challenger brands, our commitment to the values of the co-operative movement continues to set us apart and 2019 will see renewed brand investment. We will also look to build on the strong service culture provided by our branch network and telephone services and invest further in digital innovation to make customers’ lives easier.”
Last year the Bank launched a new mobile banking app and says “there has been considerable uptake in the short period of time since the launch.”
Mr Bester added: “In the short term, it remains a difficult environment for all banks and we continue to expect pressure on income, but longer term we have the right ingredients to achieve sustainable success. With a clear strategy, dedicated colleagues, a strong brand, and the commitment of our Board and shareholders we are determined to build on our improved business performance and to realise our vision to be an efficient and financially sustainable UK retail and SME bank distinguished by its values and ethics.”
Over the last four years the bank made an investment of £1.3m in the Hive, a co-op business advice and support programme provided by Co-operatives UK, which has now helped over 642 co-operative businesses across the UK.