OSB investigates £28.6m third party fraud

One Savings Bank is investigating “potential fraudulent activity” to the tune of £28.6m  involving a third party it provides funding lines to, forcing the group to delay publishing its preliminary results until April.

Alongside the group’s core buy-to-let and residential sub-segments, OSB also provides funding lines to third parties secured primarily against property-related mortgages.

In a trading statement to the City last night after the markets closed, OSB said it had recently become aware of potential fraudulent activity by one of these third parties, where its funding line is secured against lease receivables and the underlying hard assets.

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OSB had an outstanding receivable against this funding line of £28.6m as at 31 December 2020 and has now appointed forensic experts Smith & Williamson LLP to carry out an investigation.

Andy Golding, chief executive of OSB Group, said: “Whilst I am disappointed at the very recent discovery of a potential fraud at one of the non-bank lenders we provide secured funding to, we believe that this is an isolated incident and are committed to expediting our investigation and publishing our full preliminary results on 8 April 2021.”

Despite the potential setback according to OSB, excluding any impairment from the potential fraud, gross originations of £3.8bn were noted in 2020, down from £6.5bn the year prior.

The report also shows an underlying basis cost to income ratio improving to 27%, from 29% seen in 2019.

A strong credit performance was seen in 2020, with balances greater than three months in arrears stable at 0.9% at the end of 2020, this is in line with 2019, which also saw the figure at 0.9%.

Active deferrals were only 1.3% of the group’s loan book by value at 31 December 2020.

Run rate savings of more than £15m were delivered by the first anniversary of the combination, which the group noted was significantly ahead of schedule.

Underlying pre-tax profit fell to £366.2m in the year to the end of December. This is down from £381.1m a year earlier, and credit losses were broadly flat.

The board intends to propose a 2020 dividend in line with its policy of distributing 25% of underlying earnings attributable to shareholders.

Looking to the net interest margin, it dropped to 247 basis points from 266 basis points.

The net loan book increased 4% to £19bn on an underlying basis.

OSB expects its loan book to rise by 10% in 2021, and for the net interest margin to return to 2019 levels.

Golding said: “I am proud of the group’s performance in a very challenging year. Our business model proved its financial and operational resilience in 2020.

“Our customers, clients, colleagues and communities were always front of mind as we supported all stakeholders to the best of our ability, whether that was by providing mortgage payment deferrals, supporting colleagues’ well-being or continuing to allow our customers to access financial services in the easiest and safest way.

“We entered 2020 in a position of strength, with an attractive pipeline, growth opportunities and robust capital position.

“Lockdowns inevitably impacted our business and we reacted by tightening our risk appetite to protect margin and credit quality over growth.

“I am pleased that applications have now recovered to near pre-COVID levels in our core buy-to-let and residential sub-segments on tighter criteria and we have a strong pipeline of new business.

“We continue to control volumes in our more cyclical product lines, in accordance with the economic outlook and our prudent approach to risk management.

“Whilst we remain cognisant of the ongoing uncertainty over the true impact of the pandemic when government support comes to an end, the foundations of our business remain extremely robust.

“We have a very strong capital position and a resilient business model, all of which position us well to respond to the challenges and opportunities ahead and to deploy our resources to deliver attractive, sustainable returns to our shareholders over the long-term.’’