SHAWBROOK GROUP PLC (Reuters) - British lender Shawbrook (>> Shawbrook Group PLC) said political and economic uncertainty after last month's British vote to leave the European Union could lead to deferred investment decisions and a decline in borrowing demand.
The bank, which specialises in lending to small and medium sized companies in the UK, said consumer and business confidence would be impacted by the uncertainty over how the UK economy might cope with a complicated divorce from the 28-nation bloc.
"Much remains to be resolved and this will undoubtedly influence consumer and business confidence as the future of our relationship with the EU becomes clearer," CEO Steve Pateman said in a statement.
The broadest business confidence survey since Brexit showed last week that Britain's economy was shrinking.
Concerns over the ability of newer banks to challenge the big, established lenders after the Leave vote are on the increase, as analysts predict some may struggle in an economic downturn likely to slash demand for loans.
Virgin Money (>> Virgin Money Holdings (UK) PLC) said earlier this week that it had deferred plans to begin lending to small and medium-sized firms, citing expectations of lower-for-longer interest rates that has heaped pressure on banks' financial performance and net interest margins.
Shawbrook said on Wednesday that 1.2 percent of its loans and advances to customers were more than 3 months in arrears or impaired as at June 30, compared with 0.8 percent at 2015-end.
Citi analysts have previously said the company has a 75 percent exposure to SME lending, making it extremely vulnerable to a post-Brexit economic downturn, which could result in slower loan growth, a deterioration in asset quality and lower margins.
The lender's reputation for accelerating growth without undue risk also suffered a blow earlier this year when it found some irregularities in its asset finance business and Tom Wood, its then finance head, resigned.
Shawbrook booked an one-off impairment following the discovery, denting its returns and cost-to-income ratio, which fell to 47.9 percent in the half year ended June 30, from 51 percent a year earlier.
The bank's 12-month rolling returns on equity fell to 21.2 percent, against 22.7 percent in 2015.
The company, however, said it was confident in its outlook, and said it had not seen any material change in activity after Brexit. Its loan book, which stood at 3.8 billion pounds ($5 billion) at June-end, grew 14 percent over the six-month period.
"The market is anticipating a significant deterioration in performance relative to management's expectations," Shore Capital analyst Gary Greenwood wrote in a client note.
"Our reluctance to re-instate our previously positive stance simply reflects a knock to our confidence in the investment case following the controls breach and departure of Tom Wood."
Shawbrook shares were down 0.5 percent at 174.7 pence at 0757 GMT.
($1 = 0.7611 pounds)
(Reporting by Esha Vaish and Noor Zainab Hussain in Bengaluru; Editing by David Goodman and Sinead Cruise)
