It turns out CYBG (CYBG) is not as shielded from the legacy of payment protection insurance (PPI) mis-selling as it may have thought. The challenger bank has been forced to increase its provisions for past PPI costs by £350m as at March 2018. With the remaining undrawn conduct indemnity deed with former parent National Australia Bank – provided upon the group’s public listing in 2016 – not enough to cover the amount, CYBG will recognise a £202m pre-tax charge in its first-half income statement.
That will result in a 100-basis point reduction in the banking group’s common tier-one capital (CET1) ratio to below its target 12-13 per cent range. A spokesperson for CYBG reiterated all of the group’s medium-term guidance, including "the aspiration to be a dividend-paying stock and to build to a sustainable payout ratio over time”. The group – which does not operate an ordinary dividend policy – paid a maiden 1p a share dividend for 2017.
The challenger is in the process of switching its mortgage portfolio to a model based on the internal ratings-based approach, which typically requires less capital to be held against the loan book. That’s expected to complete by October. Shore Capital analysts believe it could release around £600m of surplus capital, offsetting “the dent in the balance sheet caused by the additional PPI provision”.