Booming mortgage lending swings Co-op Bank back to profit

A sharp rebound in mortgage lending amid a rampant UK housing market swung Co-operative Bank back to profit last year, the bank announced today.

A near three-fold increase in net mortgage lending pushed profits at Co-op Bank to over £30m, up from a £103.7m loss in 2020.

An ultra-low interest rate environment stoked demand in the housing market, boosting the bank’s lending performance.

“Mortgages were really attractive” and encouraged Brits on the fence about buying homes to pull the trigger last year, Nick Slape, chief executive of Co-op Bank, told City A.M.

Net interest income, which measures the difference between what a bank pays depositors and what it charges borrowers, climbed to £324m from £267m.

A higher interest rate environment has boosted Britain’s biggest lenders’ bottom lines.

An increase in borrowing costs widens banks’ net interest margin, a key source of income, as it allows them to increase rates on loans.

Co-op Bank still booked a £1.1m charge related to setting aside money to deal with an expected uptick in defaults caused by the economic damage triggered by the pandemic.

This charge runs against other big UK banks, which have unleashed hundreds of millions of pounds of loan loss reserves, boosting their full-year performance.

However, the loan loss charge was substantially lower than the £21.6m booked in 2020.

“2021 has been a milestone year for The Co-operative Bank, in which we have delivered against the ambitious turnaround plan set three years ago to significantly improve the financial strength and stability of the Bank,” Nick Slape, chief executive, said.

“Our return to profitability and balance sheet growth at improved margins gives us a strong platform for further growth in the years ahead,” he added.