Arbuthnot the beneficiary of a hawkish BoE

It’s doubtful whether bankers will be giving thanks for persistent inflationary effects, but they might just be rueing the fact that we’re nearing the top of the interest rate cycle. Arbuthnot Banking (ARBB) has certainly benefited from successive Bank of England's (BoE) rate increases, with net interest income up by 55 per cent to £99.1mn.

The venerable commercial bank recorded gross inflows of £209mn on the wealth management front, representing 16 per cent of assets under management (AuM) at the start of the year, and an increase of 21 per cent on the prior year. Net inflows through the period were offset by adverse market performance in terms of both risk assets and debt securities. Add in the war in Ukraine and the growing economic challenge to business, and it’s no surprise that AuM fell by 2 per cent to £1.3bn.

The normal business of banking provided encouragement, with further growth in relationship call/current deposit products, in addition to a step-up in fixed term deposits. During 2022, deposits increased by £255mn to £3.1bn, equating to 9 per cent year-on-year growth.

Meanwhile, loan balances across the private and commercial banking division increased to £1.5bn. The bank tightened its lending criteria in the wake of the pandemic and, even though commercial activity has normalised to a large degree, it maintained a more circumspect approach in the face of the “turbulent economic environment and global macroeconomic developments in 2022”.

The bank's CET1 ratio came in at 11.6 per cent against 12.3 per cent a year prior, although it remains significantly above its minimum requirement. And consensus forecasts point to a sizeable fall in the bank’s cost-to-income ratio in both this year and next. Hold. 

Last IC View: Hold, 855p, 19 Jul 2022