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Aldermore says costs of managing risk rise on Brexit concerns

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By Lawrence White

LONDON (Reuters) – British bank Aldermore on Tuesday said the costs of managing its risk exposure rose in the first half of its financial year due to concerns over Britain’s imminent exit from the European Union.

Aldermore, bought in 2017 by South Africa’s largest lender FirstRand, said its cost of risk for the six months to Dec. 31 rose to 0.23 percentage points from 0.15 the same time a year ago.

That reflected an increase in concerns about a rise in bad loans following Brexit, under new IFRS 9 accounting rules requiring banks to be more forward-looking in their modelling of the impact of the economy on their loan books.

“There’s is a degree of when we look at our IFRS 9 models, cautiousness in terms of the forthcoming Brexit issues,” Aldermore Chief Executive Phillip Monks told Reuters.

“It’s us taking a prudent view of what might come with Brexit.”

Cost of risk is a measure of the total expense a bank incurs managing its exposure to risk, including losses and attempts to mitigate against them.

Aldermore follows bigger rivals Royal Bank of Scotland and HSBC, which have both increased provisions against bad loans as a result of modelling the negative impact of various Brexit outcomes.

Britain’s Prime Minister Theresa May this week faces the latest in a series of crunch votes to try and get her withdrawal deal through parliament, with failure risking a ‘no-deal’ scenario that economists say could trigger a recession and a spike in bad loans.

Aldermore reported its statutory profit before tax for the six months ended December 31 rose 20 percent to 75 million pounds ($98.08 million), while its net interest margin, a closely-watched measure of profitability, held at 3.6 percent.

That figure is like to erode by 0.3 to 0.4 percentage points in the next few years as a result of rising funding costs and competitive pressures in the market, Monks said.

(Reporting by Lawrence White, editing by Louise Heavens)

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