Secure Trust Bank Warns on Profit as Vehicle Finance Exit Accelerates

Core divisions: double-digit growth year-on-year, softer quarter-on-quarter

Core balances fell 2.2% in the quarter but are up 10.3% year-on-year. Within that:

• Retail Finance grew 9.1% year-on-year.
• Real Estate Finance delivered 12.6% year-on-year growth.

Core new business of £426 million was slightly ahead of Q3’24 but below Q2’25. Management points to normal seasonality in Retail Finance and a softer quarter for new-to-bank Commercial Finance deals. The underlying demand engine is still running, just at a lower RPM in Q3.

Deposits and capital: funding matched to demand, ratios described as strong

Deposits fell 1.7% quarter-on-quarter to £3,449 million and are up 9.8% year-on-year. STB has managed retail deposits to a broadly flat position, which makes sense as the run-off in Non-Core reduces the need for funding. Capital ratios are said to remain strong, though no figures are disclosed.

Profit outlook: below consensus by up to £9m, but c. 30% growth still expected

The Board now expects underlying profit before tax for FY25 to fall short of market expectations by up to £9 million due to Vehicle Finance performance. Crucially, management still expects around 30% year-on-year growth in underlying profit before tax, helped by the strength of the Core franchise.

Strategically, the July pivot away from Vehicle Finance is aimed at improving Return on Average Equity (ROAE) over time. Near-term earnings are taking a knock from run-off income shrinkage and elevated charges, but the end-state should be a higher-quality, higher-return lending mix.

Regulatory overhang: FCA motor finance redress consultation

STB highlights the FCA’s consultation on an industry-wide compensation scheme for motor finance customers who were treated unfairly. The RNS does not quantify any potential impact. Investors should note the uncertainty – further updates will come if needed.

What it means for investors: the good, the bad, and the unknowns

Positives

• Core businesses are resilient, with 10.3% year-on-year lending growth and solid contributions from Retail Finance (+9.1%) and Real Estate Finance (+12.6%).
• Capital ratios remain strong (though not disclosed), giving balance sheet flexibility.
• Strategy is simplifying the group and targeting better ROAE over time.

Negatives

• Profit warning: FY25 underlying PBT now expected to be up to £9 million below market expectations.
• Vehicle Finance run-off is reducing income faster than planned and impairments are higher year-to-date.
• Potential exceptional provisions for onerous supplier contracts – quantum not disclosed.

Unknowns

• Timing and magnitude of any improvement in IFRS 9 credit models as PD assumptions catch up with observed performance.
• Outcome of the FCA’s motor finance consumer redress consultation and any resulting cost.
• How quickly Core new business reaccelerates after a seasonally softer Q3.

Jargon buster

• Run-off: letting a loan book shrink as customers repay, with no new lending added.
• IFRS 9: accounting rules for expected credit losses that use forward-looking models.
• Probability of default (PD): an estimate of how likely a borrower is to miss payments.
• ROAE: Return on Average Equity – a key measure of how efficiently a bank turns equity into profit.
• Exceptional costs: one-off items excluded from “underlying” profit to show the recurring earnings power.

My view: a necessary short-term hit to improve long-term quality

This is a classic transition quarter. The vehicle finance exit is doing what exits do – cutting income faster than costs can reshuffle and complicating the impairment picture. The profit shortfall is not small, but the Core engine is still growing and the balance sheet looks well controlled.

If impairments in Vehicle Finance normalise and the model catch-up arrives, the drag should ease. The bigger picture – a more focused lender with stronger ROAE – remains intact. Watch for Q4 trends in Core origination, any clarity on exceptional provisions, and the FCA redress outcome. Until then, expect a cautious market reaction balanced by comfort in the underlying growth story.