Hampshire Trust Bank closes asset finance division

Hampshire Trust Bank (HTB), a UK-based specialist bank, recently announced its decision to close its asset finance division, following a review of the bank’s business model.

The move underscores HTB’s response to challenging market dynamics and a desire to optimise the bank’s regulatory capital in response to both internal and external pressures.

HTB’s decision comes amid shifting priorities within the bank as it seeks to enhance profitability in core business areas. While other divisions, including property finance, development finance, and savings products, continue to drive growth and profitability, the asset finance division has struggled with diminishing margins and profitability in recent years.

A statement from HTB noted that, “HTB’s rapid growth has steadily reduced its pool of surplus regulatory capital and the bank has now reached a point where it had to choose between slowing the profitable development of its other businesses or the closure of its less profitable asset finance division. The bank has made a strategic decision to deploy its capital into other specialist areas of the business.

“The bank continues to fund and support new and existing asset finance lenders via its block discounting and wholesale speciality finance division.”

This operational and strategic shift reflects a broader trend in the UK and Europe’s banking sector, as financial institutions navigate mounting regulatory challenges, economic pressures, and fierce competition.

Earlier this year, Société Générale announced it would sell their equipment finance division, SGEF, to Groupe BPCE, sparking questions about whether banks are increasingly focusing on the low margins generated by their asset finance subsidiaries.

It is quite concerning that major banks are exiting the asset finance market, which reduces competition—contrary to the FCA’s objectives—and will likely lead to rising prices.

Market conditions and demand shifts: The asset finance market in the UK has faced fluctuating demand, especially in light of recent economic challenges. The ongoing uncertainty due to inflationary pressures, rising interest rates, and sluggish economic growth has made it challenging for banks like HTB to maintain steady growth in this sector. SMEs, which make up the bulk of asset finance clients, have seen reduced appetite or ability to secure finance, impacting demand for asset finance solutions.

Increased competition and margins pressure: In recent years, many new and established lenders have entered the asset finance market, intensifying competition. With growing pressure on margins, banks are finding it harder to justify the resource-intensive nature of asset finance against other, potentially higher-margin services.

Regulatory and compliance pressures: The regulatory landscape for financial institutions has become increasingly complex, and compliance requirements add to the cost and operational burden of asset finance. In a highly regulated environment, HTB may have assessed that the cost of maintaining compliance and managing regulatory risks in asset finance outweighed the potential revenue.

Refocusing on core competencies and growth areas: HTB has identified other areas of its business with higher growth potential, such as property finance, development finance, and savings products. By reallocating resources and capital to these areas, HTB aims to strengthen its position in segments where it has competitive advantages and can offer more value to its customers.

Despite the closure of its asset finance division, HTB remains committed to its core markets, focusing on sectors where it can leverage its expertise and deliver competitive offerings, including specialist mortgages, development finance, bridging, block discounting and wholesale specialty finance.

“We will now concentrate all our available resources on continued growth in our core markets of specialist mortgages, development finance, bridging, block discounting and wholesale specialty finance. We have a robust capital base which secures the future of these core businesses for the foreseeable future and will soundly underpin our ongoing growth,” he added.