Vanquis Banking : Preliminary results for the year ended 31 December 2023 Presentation

Vanquis Banking Group

2023 full year results

27 March 2024

Performance overview

Ian McLaughlin

Chief Executive Officer

Challenges in 2H23

• 1. Under investment in key capabilities for a number of years.

• 2. IFRS 9 impairment model enhancements contributing disproportionately to profitability.

• 3. Need to refocus on sustainable and profitable growth in both customer numbers and receivables.

• 4. Updated pricing strategy needed to cover cost of funds, cost of risk and operating costs.

• 5. Simplification required to remove operational silos, reduce duplication and manage costs.

2023 highlights

Management

• • Significant changes in senior management in 2H23 (CEO, CFO)1; a New Chair1 ; and Executive Committee refresh

  Business profile / strategy

• • Swift action in 2H23 to manage volume growth, pricing and costs

• • Future strategic direction being announced later today

• • Adjusted PBT2 of £24.9m, in line with 3Q23 management guidance (£25-30m)

• • Volume management contained net receivables growth at 14% to £2,175m, with a net reduction in receivables in 4Q23

  Financial performance

• • Net interest margin stabilised at 19.0%3, supported by upwards repricing in Cards in 4Q23

• • Adjusted operating costs4 of £297.8m (FY22: £288.0m). On track to deliver c.£60m of cost savings, in line with 3Q23 management guidance

• • Complaint costs increased YoY to £28.5m in FY23, with increases continuing in 2024

• • Adjusted ROTE5 of 3.2%

• • CET1 ratio6 of 20.5% maintained within the Group's updated CET1 target range (19.5%-20.5%)

Capital

• • The PRA's CSREP review of the Group's capital requirements in 1Q23 resulted in a 6.4% Total Capital Requirement reduction (from 18.3% to 11.9%)

Funding Dividend

• • Balance sheet now >80% retail deposit funded; all senior unsecured wholesale funding extinguished

• • Final dividend proposed of 1.0p per share to give a total dividend for the year of 6.0p

2023 Full year results

Dave Watts

Chief Financial Officer

2023 Results Summary

Positive management actions in 2H23

• • Growth in gross receivables, mostly in 1H23, not matched by growth in net interest income due to increased interest expense.

• • Increase in FY23 impairments reflects lower model enhancement tailwinds, originations growth (+9%), lower debt sale profits and lower recoveries.

• • Adjusted operating costs increased due to speculative complaints activity, and continued IT and customer proposition investment, offset by cost reductions.

2023 Metrics & Key Ratios

Metrics & ratios lag management action

DEC22 £mChange %

Receivables

Per share metrics

Selected Key Ratios11

ROTE12

21.8%

Asset yield13

22.6% 23.7%

Cost of funds14

4.4% 2.8%

Net interest margin (NIM)15

19.0% 21.2%

Cost of risk16

7.1% 3.2%

Risk-adjusted margin (RAM)17

13.9% 20.3%

Cost: income18

Total capital ratio19

60.9% 59.9%

30.6% 37.5%

CET1 ratio6

20.5% 26.4%

Liquid assets (HQLA) (£m)20

682 421

Excess HQLA over LCR (£m)21

627 384

• • Gross receivables up 9% YoY driven by 12.8% growth in 1Q23 to 3Q23, followed by a 3.2% reduction in 4Q23 due to volume management.

• • Comparatively higher net receivables YoY growth of 14% relative to gross receivables due to a mix of IFRS 9 model provision releases and debt sales.

• • Lower Adjusted ROTE driven by significantly lower Adjusted PAT in FY23.

• • Strong capital position maintained following actions to manage new business volume growth in 4Q23.

• • Strong liquidity and funding position to support growth.

• • FY23 NIM stabilised at 19.0% following management actions on card pricing and volume growth in 2H23.

Net Interest Income

Change in management prioritisation in 4Q23

Interest income (£m)3

Interest expense (£m)

• • Over 90% of Group's Total income driven by Net interest income (NII).

  4Q22

  1Q23

  2Q23

  3Q23

  Net Interest income (£m)3

  4Q23

  4Q22

  1Q23

  2Q23

  3Q23

  4Q22

• • Interest expense increased due to higher market interest rates and higher funding balances. Cost of funds remains below the BoE base rate.

  4Q23

• • 1Q23 Interest income remained stable, with 2Q23 and 3Q23 NII increases driven by continued focus on receivables growth across all products.

• • 4Q23 NII increased primarily due to Cards upward re-pricing initiatives reflecting increased cost of funding and servicing costs.

1Q23

Quarterly average gross receivable22

2Q23

3Q23

4Q23 2,395.0

Net Interest Margin

Stabilisation due to management action

FEB22

MAR22

APR22

MAY22

JUN22

JUL22

AUG22

SEP22

OCT22

NOV22

DEC22

JAN23

FEB23

MAR23

GroupCardsVF

APR23

MAY23

JUN23

JUL23

Group cost of funds14 vs benchmark interest rates (%)24

AUG23

SEP23

OCT23

NOV23

DEC23

6.5

6.0

4.5

4.0

5.5

5.0

0.5

0.0

3.5

3.0

2.5

2.0

1.5

1.0

Feb22

Mar22

Apr22

May22

Jun22

Jul22

Aug22

Sep22

Oct22

Nov22

Dec22

Jan23

Feb23

Mar23

Apr23

May23

Jun23

Jul23

BoE Base Rate2-yr swap rateCost of funds

NIM development current basis (%)3,15

FY223

Disc. OpsFY223

Asset yieldProduct Liquidity Funding

1H23

AssetMixProduct Liquidity Funding

2H23

yieldMix

25

• • NIM stabilised at 19% in 2H23 due to Management actions including Cards re-pricing strategy and volume management.

• • 1H23 NIM reduction of 180bps due to increased cost of funding and focus on receivables growth.

• • Income from liquidity increased in 1H23 mostly due to higher interest rates received and higher balances held at the BoE.

• • Cost of funds remains below BoE base rate (DEC23: 84bps lower; DEC22: 65bps lower) compared to 252bps higher two years earlier.

  Aug23

  Sep23

  Oct23

  Nov23

  Dec23

• • Benefit of CUG waiver significantly reduced spread vs benchmark interest rates. Cost of funds expected to reflect expectation of BoE base rate, but at a lag.

FY23

Receivables

Improvement in book quality

Gross receivables by Stage (£m)7

MAR23

Stage 1Stage 2Stage 3

Net receivables by Stage (£m)9

JUN23

SEP23

DEC23

• • Quarterly receivables increased throughout 2023, noting active volume management resulted in a drop in 4Q23 gross receivables.

  23.7% 14.3%

  62.0%

• • Gross receivables increased in 1Q23-3Q23 vs DEC22 driven by: VF, up £195m (+20.1%); Cards, up £71m (+4.9%); and Loans, up £55m (+64.8%).

• • Improved quality of Gross receivables with a higher proportion of book in Stages 1 and 2 (DEC23: 76.3% vs DEC22: 74.3%) partly driven by newly developed acquisition scorecards in Cards and Vehicle Finance.

• • Proportion of Stage 3 net receivables broadly stable vs DEC22, also driven by card debt sales.

Net receivables by product (£m)9

MAR23

JUN23

SEP23

Stage 1Stage 2Stage 3

DEC23

12.9% 14.0%

73.1%

MAR23

JUN23

SEP23

CardsVFLoansMortgagesDEC23

4.7%

36.4%

58.8%

10

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Vanquis Banking Group plc published this content on 27 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 March 2024 07:02:06 UTC.