Co-op - one key figure that borrowers and savers should keep an eye on

Co-op branch Image copyright PA

The chief executive of the Co-op Bank, Niall Booker, will see some glimmers of hope in today's results.

The bank's capital position (the strength of its balance sheet) is improving and operational costs are down 13%.

Although losses are still significant, they are lower than expected as the bank off-loads underperforming mortgages to investors who are desperately searching for yield in an ultra-low interest rate world.

Those investors are snapping up riskier self-certified and interest only mortgage packages in the belief they will enjoy higher returns in the long run as the economy improves and incomes rise.

The Co-op's £1.5bn Optimum package of residential mortgages repackaged and sold off in May was the latest example of shovelling high-risk assets out of the door.

And the fewer high-risk assets a bank has, the better the capital position.


For borrowers and savers, one figure in the small print worth keeping an eye on is the net interest margin (NIM).

For the Co-op Bank. it is up 0.12% overall and 0.24% in the core bank, figures that will be welcomed by investors as they are comparable to an increase in a company's gross profit margin.

At its most basic - and this is true across banking - the net interest margin is the difference between the interest rate paid on deposits and the interest rate charged to borrowers, in the main mortgage holders. The wider it is the more money a bank makes.

Co-op's is still a relatively modest 1.32%. That compares with Lloyds, which is expected to hit 2.6% by the end of the year.

Generally, mortgages are a more profitable line of business for banks compared with savings products.

And the mortgage market is brutally competitive at the moment, as the major banks battle for home buyers' custom.

So interest rates charged to borrowers are under intense pressure to remain as low as possible.

Which could be bad news for savers, if a bank wants to keep that margin improvement.


Of course, this is all a balancing act. Depositors are important for a bank's capital position - so irritate them at your peril.

Certainly, Mr Booker will be pleased that the Co-op has arrested the fall in current account holders.

In the same period last year, Co-op lost over 60,000 customers. That figure has now dropped to 2,250 as the terrible publicity surrounding the bank has abated.

One stark figure to end on. Co-op has revealed that the number of branch transactions fell by 28% in the first half of the year.

It is already in the process of closing a large number of its high street branches, the number falling from 227 to 165. It is likely there will be more closures to come.