British bank HBOS warned investors today of a steeper fall in profit margin this year and said it might miss a target for shareholder returns but stressed it would meet market profit forecasts.
Profitability has been hit by rising interest rates that increased the cost of money HBOS borrows to make loans, it said in a trading statement. The bank has also been more cautious on mortgage lending, threatening its 20 per cent goal for return on equity this year.
Net interest margin, which measures lending profitability, will fall by about 12 basis points this year, HBOS said. The margin narrowed 6 basis points last year to 177 basis points. A basis point is 0.01 per cent age point.
Some analysts have been concerned that HBOS is sacrificing profitability for asset growth and say bank margins will be squeezed more as lending growth slows.
HBOS uses more borrowed money than rivals that have bigger low-cost customer deposit bases, so rising interest rates increase its short-term funding costs.
HBOS said in February that it would tighten lending as interest rates rose. Its share of annual net mortgage lending will be less than 20 per cent this year compared with 25 per cent last year, the bank said on Thursday.