CLYDESDALE Bank has announced the closure of its defined benefit pension scheme to future accruals, more than a decade after closing the scheme to new members.
Shares in the bank’s owner CYBG leapt nine per cent yesterday as a ‘solid’ third quarter kept it on track to deliver on full-year guidance in an “uncertain” environment. The bank also made progress in its cost-cutting plans.
Chief executive David Duffy said that while the economic and political environment in the UK remained uncertain, “we are focused on delivering our strategic objectives”.
“We remain confident that the medium term strategy we outlined at our capital markets day in September 2016 will differentiate us from our competitors and deliver our FY19 targets,” he said.
In September, CYGB forecast mid-single digit percentage loan growth for the medium term, with a loan to deposit ratio of less than 120 per cent.
In closing the defined benefit scheme, which includes about one-third of the group’s staff and moved from a final to career-average salary basis in 2005, CYBG has increased its minimum contribution to the defined contribution pension scheme from five per cent to eight per cent of a member’s basic salary.
The bank will also match up to an additional five per cent paid by employees.
The scheme’s closure to future accrual reduced liabilities in its triennial valuation by £131 million, leaving its overall deficit at £290m. CYBG said and the changes will not result in any additional future contributions.
The group held a two month consultation with staff on a number of proposed changes to its pensions and overall reward package, which ended in June 2017.
“Like many employers, the bank reviewed the long-term sustainability of its final salary pension scheme, as well as considering how to align pension benefits across the workforce, so all staff are rewarded equally,” said a spokeswoman.
The bank’s underlying annual operating cost estimates, which had been in the £690m to £700m range, have been cut to £680m, which Mr Duffy said was “testament to the success of our restructuring programme”.
This programme has included closing 40 Clydesdale Bank branches in 2017 alone, following a series of closures last year.
When asked where the £10m to £20m of extra savings would come from, chief financial officer Ian Smith said: “It reflects that we’ve made faster progress than expected in our cost reduction programme... what it means is that the programme is ahead of the game.”
CYBG, which also owns Yorkshire Bank, saw customer deposits fall by £800m, in the nine months to June, to £26.2 billion, representing a four per cent fall on an annualised basis, but current account balances grew 6.4 per cent.
The bank has recently simplified its ISA offering.
One of its main areas of focus is digital transformation, focused around its online iB platform, which forms part of a £350 million investment programme. The bank now has more than 80,000 ‘B’ accounts.
Annualised net interest margin (NIM) in the nine months to 30 June was 229 basis points, an improvement of three basis points on the six months to 31 March. The bank noted that it continued to see the benefits of deposit repricing and other funding actions offsetting competitive pressure on asset yields in retail lending.
Mortgage lending grew 5.8 per cent on an annualised basis, to £22.8 billion, while the bank’s lending to small and medium businesses grew 4.7 per cent on an annualised basis to £6.6bn.
“It’s not an easy world out there, but what I think it shows is that we’re now starting to see in the numbers some of the actions and improvements we’ve been putting through our business in the last 18 months, so it’s pleasing to see that come through in performance,” said Mr Smith.
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