Vanquis Banking Group plc (VANQ) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us for our presentation of our 2022 preliminary results. As in previous years, I'll take you through the strategic highlights before Neeraj takes you through the financials. I'll then return for the strategy and outlook, and then we'll finish with questions. Turning to Slide 4. When I became CEO in 2018, my aim was to stabilize the group, drive strategic change, focus on the customer and ultimately deliver value for shareholders. This, I believe, we have done, and now the group is in a very different place to the one which I inherited. To get there, we've had to recapitalize the group, fight off our hostile attempt, leave enhanced supervision, significantly enhance our relationship with our regulators, trade successfully through COVID and sadly had to close the Consumer Credit Division. The outcome of all this strategic change, you can see on Slide 5, a group repositioned as a specialist banking group, now called Vanquis Banking Group. Our customers are now in the mid-cost and near prime markets, which means the credit risk profile of the group has reduced significantly, as its receivables of growth is now of much higher quality. We are out of the high-cost short-term credit market. Our APRs are now all below 50% and not in the 500% range, and we have a risk-adjusted net interest margin of over 20%. 2022 was a pivotal year for the group strategically and financially. The group became a specialist banking group. It rebranded. It delivered strong receivables growth. The PRA approved a large limit waiver. And in March 2023, the PRA reduced the group's total capital requirement by approximately 1/3. The group's new loans business is now well established, a second charge mortgage product pilots has been launched, and we're back in the FTSE 250. Financially, the group delivered adjusted profit before tax of GBP 127 million ahead of market expectations with receivables growth of 13.5% year-on-year and generated a risk-adjusted return on equity of 22.2%. Turning to dividend. The board, reflecting its confidence in the outlook for the group, the strong financial performance of 2022 and its robust capital position has decided to pay a total dividend of 15.3p per share, equating to a payout ratio of 40%. So in summary, the group performed well in 2022, delivering strong financials, growth in customers and receivables, completed important strategic initiatives and is well positioned to continue growing its loan book in 2023. So for now, thank you for listening, and I'll hand you over to Neeraj, our CFO, who will take you through the numbers in more detail. Neeraj, over to you.

Thank you, Malcolm, and good morning, everyone. Slide 7 shows a summary of the group's financial results for full year 2022. The group delivered strong net receivables growth year-on-year to over GBP 1.9 billion, reflecting the group's strategic positioning and competitive advantages of having access to low-cost capital and funding options. Our net interest margin increased to 21% during the year reflecting a higher asset yield offset by an increased cost of funds as our loan books grew. On a risk-adjusted basis, the net interest margin was broadly flat at just over 20%. The group's balance sheet position remained extremely strong and was bolstered by the receipt during the period of a large limit exposure waiver from the PRA. This allows us to share our access to retail deposit funding with Moneybarn. The successful repositioning to lower risk customers and the overall of our group-wide risk management framework helped to improve asset quality despite the more uncertain backdrop. And shortly after the period end, the group's total capital requirement was reduced by more than 1/3, and we are now required to hold 15.4% before the confidential and management buffers, which I will cover in more detail later in my presentation. Slide 8 shows the group financial results in more detail. Full product P&Ls can be found in the appendices at the back of this deck. Our credit card business generated adjusted profit before tax of GBP 179 million in 2022, driven by net interest income growth and operating cost reductions year-on-year. Our vehicle finance business also generated excellent profit growth and delivered an adjusted PBT of GBP 38 million for the year. The secondhand vehicle business grew. It's credit issued significantly during full year 2022 to over GBP 340 million, driven by strong new business growth and robust pricing dynamics in the market. Our personal loans business grew strongly during 2022 to end the period with receivables of approximately GBP 75 million and customers of 34,000, representing growth of 170% and 70%, respectively. As a result of this growth as well as ongoing investment in the business, losses for the period widened to approximately GBP 16 million from GBP 9 million a year earlier. The group's central items increased during the year, reflecting the increased business investment, the rollout of the shared services model for all group functions as well as increased interest costs. I'll come on to the expected group cost trajectory later in this presentation in more detail. Bringing these items together for 2022, the group delivered an adjusted profit before tax from continuing operations of GBP 127 million. After allowing for CCD closure costs and exceptional items, the group delivered a statutory profit before tax of GBP 99 million versus GBP 4 million in 2021. Slide 9 shows our key performance indicators. In line with our strategic banking ambitions, we have updated some of the calculations and definitions for our KPIs. Please see Slide 42 for our updated definitions. The group's asset yield net interest margin and risk-adjusted margin demonstrated their resilience year-on-year despite the significant repositioning of the group in recent years towards a lower-risk customer base. As I've pointed out already, our CET1 and total capital ratios are both very strong. And I will cover our treasury strategy later in this presentation. The final point to bring out on this slide is our underlying cost income ratio, which we are targeting to reduce to 40% in 2024. Slide 10 shows a walk-through of the main drivers of the group's cost base in 2022. You will recall that we stated with our H1 2022 results that we expected our cost base for the first 6 months of 2022 to roughly double for the full year. I'm pleased to report that we came in below this guidance at GBP 288 million of total costs, which includes GBP 37 million of business investment. Shown here on the chart, you can see that the GBP 37 million can be broken down into GBP 19 million of central business investment and GBP 18 million of divisional business investment. These investments have been directed in large part to areas such as IT, operations and our change in transformation teams. These investments are designed to provide a more efficient and scalable platform for our businesses and enabling functions for growth in the future. During 2023, we expect these investments to start to reduce before falling away more meaningfully in 2024, putting us on track for our 40% cost-income ratio target in 2024, all else being equal. As the group starts to grow its loan books again more meaningfully, there is an important link to make between that growth and the cost base overall. However, the work we're doing today to improve the efficiency of the cost base should mean that we're able to capture more of the operational leverage going forward. Slide 11 shows a snapshot of the core products we offer across credit cards, vehicle finance and personal loans. This slide illustrates the growth in net receivables that each of our product businesses delivered in 2022. The reduction in capital requirements that the group received from the PRA recently supports the group's focus on organic growth and on growing its loan books back to pre-pandemic levels. The risk-adjusted net interest margin in our cards business fell year-on-year, driven by the higher impairment charge due to the growth in the loan book, but this was offset by cost reductions to deliver adjusted profit before tax growth to GBP 179 million for the period. In our vehicle finance business, net receivables once again grew strongly year-on-year as the business leveraged its access to capital and funding. Growth in the risk-adjusted net interest margin drove adjusted profit before tax growth to GBP 38 million for full year 2022. Finally, the personal loans business delivered excellent growth in receivables and customer numbers, reflecting its competitive positioning and product offering, losses for this business increased year-on-year, reflecting the strong levels of growth and continued investment in the business. Slide 12 illustrates how net receivables and customers by product have evolved since before the pandemic in more detail. On the left-hand side, we can see that the net receivables as at the December 2022 were very close to equaling their level from 2019. Indeed, I'm pleased to report that the group's receivables overtook this milestone as at the end of February 2023. Customer numbers grew slightly in 2022 year-on-year, but their recovery has not been as marked as receivables, which highlights how the average loan size for the group has developed in recent years. For 2023, we plan to deliver an acceleration of receivables growth versus what we delivered in 2022, albeit on a controlled and disciplined basis and whilst maintaining asset quality. An important driver of receivables growth in our credit card business is how our customers use their cards. Slide 13 shows how spend on our cards has evolved and also how spend per category has changed over the last 3 years. The chart on the left-hand side shows that spend per customer improved versus 2021. And indeed, how it's now back to pre-pandemic levels in aggregate, which is encouraging. For 2022, spend overall increased by 6% year-on-year. The right-hand chart shows the spend categories and how they have evolved. Notably, travel expenditure in H2 2022 increased not only versus H2 2021, but it is now back to 2019 levels. Turning to Slide 14. The low cost of risk rate for our credit card business shown here reflects the release of provisions during the period. Going forward, we expect the cost of risk to normalize towards a range of between 5% to 10% through the cycle as the business starts to grow again. This is lower than the historic average for that business, reflecting the improved credit risk profile of that business. Message is similar for the vehicle finance business which also saw a very low cost of risk throughout 2022. Provision releases within the vehicle finance business are much lower relative to the cards business. So the reduction here reflects the business's focus or lower risk customers since the start of 2020. In our personal loans business, which is not shown here owing to its relative infancy, the cost of risk increased year-on-year, reflecting the high rates of receivables growth that business delivered in 2022. And the lower levels of provisions releases in 2022 versus the prior year. For the group overall, we expect the cost of risk to normalize towards our previously indicated range of between 5% and 10% through the cycle. This increase versus 2022 reflects a normalization of ratios following the pandemic. Overall improvements in credit quality and the controlled acceleration of receivables growth that we anticipate over the coming years. Slide 15 shows the coverage levels for the credit card and vehicle finance business have evolved in recent years. As you can see on the left-hand side, the coverage level for credit cards in H2 2022 has now fallen below the level seen pre-pandemic. This result reflects the release of provisions during the period and the overall repositioning of the book towards lower-risk customers over the same time period. The vehicle finance coverage level has reduced in the last 2 years as the business has repositioned as well. The chart shown here does not include a stock of loans known as shortfall sold, which remaining balances outstanding on customer loan agreements subsequent to the repossession and sale of the vehicle held as collateral, but which have not yet been sold due to inactivity in debt sale markets currently. Provisions held against these loans are in the region of 96% and hence, they have an overstated impact on the coverage ratios for that business. Overall, the group's coverage level reduced during 2022 to 24.1% from 26.8% a year earlier. This is a trend we expect to continue as the group starts to benefit from a lower credit risk profile, reflecting its repositioning and renewed customer focus. Over time, as with our cost of risk profile, we expect the group's coverage ratio to continue to reduce and to eventually settle at around 15% or lower. Over the next 3 slides, starting with our credit card business on Slide 16, I will set out some of the ways in which the repositioning towards low-risk customers across our business can be evidenced. Perhaps the most interesting and illustrative trend to note here is the degree to which 26.5% to 29.5% APR cards now represent new card customer bookings. This is a direct and very deliberate result of the focus on lower-risk customers. This can also be seen in the expected 12-month bad rate and the arrears rate, both nearly halving since January 2019. There is a similar message on Slide 17 for the vehicle finance business. The near-prime bookings now account for around 25% of new business, which has had a similar impact on the 12-month bad rate. The second interesting dynamic in the vehicle business has been the average deposit from our new customers, nearly doubling since 2019. This can partly be attributed to a rise in average vehicle prices but it is also reflective of the new underlying improvement in average customer quality. Moving to Slide 18. There is a similar improvement in the bookings mix for the personal loans business noted here. The business is still establishing itself and as such, the metrics are likely to be slightly less established than elsewhere in the group. However, that being said, the improvement in the expected 12-month bad rate and the delinquency rate is still encouraging, giving receivables grew by some 170% in 2022. The next few slides set out the group's capital funding and liquidity positions, which are all strong and healthy. Shown here on Slide 19 is an illustration of how the group's capital requirement changed following the receipt of a C-SREP from the PRA in early March 2023. The group's new total capital requirement, excluding any management and confidential buffers has reduced to 15.4% from 21.8% previously. This reduction of 6.4% equates to approximately GBP 117 million of freed up capital before any changes to management or confidential buffers. Moving to Slide 20. The chart shows the group's regulatory capital position up to the 1st of January 2023, which includes the final element of the IFRS 9 unwind of GBP 54 million that we have absorbed. As set out here, the group ended 2023 with a fully loaded CET1 base of GBP 425 million, equivalent to a ratio of 23.7% and total regulatory capital resources of GBP 625 million, including the Tier 2 bond. The next slide, Slide 21 sets out the group's Tier 1 position on a fully loaded basis. A fully loaded capital position is the regulatory capital of the group calculated as if the IFRS 9 transition relief were not available. In this context, it includes the final element of the transition that we have absorbed of GBP 54 million. As a result of the group's requirement changes, the group's additional Tier 1 capacity has reduced to GBP 40 million from GBP 60 million previously. And the Tier 2 capacity has also reduced to GBP 54 million from GBP 83 million previously. The group's new Tier 1 requirement is 12.4%, as shown on the right-hand column. Adding to that, an additional 1% requirement for the higher countercyclical buffer, which comes into effect in July 2023, our own management buffers and any applicable confidential buffers that we may be required to hold, we plan to target a CET1 ratio of 20% over time prior to any optimization of the capital stack to include AT1 versus the 23.7%, which we currently hold. Slide 22 shows the group's highly liquid position against its upcoming funding maturities. As at December 2022, the group held GBP 384 million in liquid excess over its liquidity requirements, which equated to a liquidity coverage ratio of over 1,100%. In 2023, the group has approximately GBP 160 million of bond maturities shown on the right-hand side of the page, which can already be met using our existing liquidity resources. Whilst on the subject of liquidity, it is important to note that all of our deposits are fixed term in nature, making them much more difficult to access than in instant access savings account and the vast majority of them are covered by the government's GBP 85,000 guarantee scheme. Turning to next slide, Slide 23. This is designed to reiterate an important strategic message for Vanquis Banking Group. As you will hear more from Malcolm, we have repositioned the group towards being a specialist banking group. We have refocused our efforts on a lower-risk customer segment and all of our collective efforts are now aimed at developing the group's banking franchise. As part of this, you can expect our funding model to follow suit. To that end, we are moving towards becoming a primarily retail deposit-funded bank, which will be largely complete by the end of 2023 after the 2 maturities on the previous slide. Finally, before I hand back to Malcolm for his closing remarks about our strategic positioning and how we plan to grow the business going forward. Slide 24. This sets out our financial outlook, which is designed to help stakeholders understand our strategic financial thinking. For 2023, the group will continue to press home the competitive advantages at its disposal across capital funding and liquidity. As a result, we plan to accelerate the growth in our receivables versus what we delivered in full year 2022. We will deliver this growth whilst carefully and prudently maintaining asset quality, keeping impairment levels within budget and gradually reducing the coverage ratios on our balance sheet. We will continue to invest in the group's long-term capabilities during 2023, including IT and operations to drive operating leverage gains and scalability gains in future periods. As a result, we plan to invest a similar amount in 2023 as we did in 2022 and the group's total costs are expected to remain broadly flat year-on-year. At present, the group remains on track to meet its 40% underlying cost/income ratio in 2024. This will be achieved by planned investment cost reductions and net interest income gains in 2024. Finally, as the group's funding mix moves to be majority retail deposit base, we plan to deliver a stable net interest margin profile in 2023 versus 2022. I will now hand back to Malcolm, who will take you through the strategy and outlook section for the group.

Thank you, Neeraj, for that excellent summary of our financials. As I said earlier, we delivered good growth and financials in 2022, backed up by robust capital and liquidity. Slide 26, Vanquis Banking Group is now a specialist banking group with a diverse core product offering, which meets our target customer needs is positioned in growing addressable markets and is diversifying further into second charge mortgages. The customer-led strategy is based upon providing products that deliver financial inclusion to customers who can't access credit from traditional lenders, which is supported by our social purpose and ensures that we have the right culture, mission and vision in place to deliver it. The strategy and product offering are then underpinned by a well-capitalized balance sheet. Here, as we've illustrated previously, we have a significant capital and funding competitive advantage as we can access long-term retail deposits to fund the growth of all our products when many of our peers are struggling to access the wholesale markets. This in tandem with our operational leverage enables us to deliver attractive and sustainable growth for our shareholders as we have shown in 2022. Turning to future growth, we can achieve our growth plans in 2 ways, growth in our end addressable markets and/or growth in market share. Slide 27 shows the growth in our addressable market since 2018, split by consumers across credit cards, vehicle finance and personal loans. As you can see, the target addressable market has increased by 15% over this period and is now over 13 million customers. Indeed, if the current macroeconomic environment persists, we'll see this customer base growing further as customers move from prime into near prime and mid-cost markets. Our markets have grown, and in our view, they will continue to do so, driven by the impact of the pandemic and the cost of living challenge on household finances, changing employment patterns with self-employment growing in size and our repositioning, enabling us to serve the growing new to credit and thin credit file market. This is the market growth context, but we plan to accelerate our growth in these markets organically, which is a key component of our investment case. So Slide 28 sets out how we will grow. Firstly, we will achieve growth by leveraging our banking platform and access to capital and funding through retail deposits. We'll also launch new products as we did in 2021. But now it's the second charge mortgages. And I'm really excited about this product as I think it complements our existing lending portfolio will help customers as many of them have mortgages. Just as with personal loans, we'll start with a pilot phase and assuming it all goes to plan, the next stage will be to offer the product directly to new and existing customers. Secondly, in credit cards, we are driving front of wallet behavior to help support utilization rates responsibly. One way of doing this is by improving our digital offering with Google Pay now up and running and Apple Pay due later this year. We've implemented a new credit scorecard to help and support growth. We are offering cards with new price points and balance transfers to ensure our cards remain very competitive within our market. Thirdly, in Vehicle Finance, we will continue to seek new business partnerships, assess new asset classes potentially including electric and hybrid and look at different contract types such as PCP arrangement and continue to improve our customer retention efforts. Fourthly, in personal loans, 2022 was the first full year of operation, which commenced after its pilot phase in June last year. It now has 34,000 customers, receivables of approximately GBP 75 million and is on track to become a significant part of the group over time. In 2023, it will increase its open market offering, deliver product and service expansion and finalize its transition onto our new customer platform, Gateway. Slide 29. Here, you can see the growth in gross lending volumes in the second charge market, which is the new market we're entering. As you can see, the market has grown year-on-year since the financial crisis with the brief hiatus during the COVID period. We are buying back books first in this market before offering the product to our own customers. In this market, we believe we can be successful as we have the capital and funding advantages compared to some of our competitors. We also have customers on our books who have mortgages, around 220,000 who, therefore, could benefit from this product. and our strong consumer brand in the near prime and mid-cost market will resonate with customers as we become the leading brand for customers in this space. Turning to Slide 30, which shows the group's capital management framework. The group's strong capital and funding positions with a reduction in total capital requirements received recently from the PRA will enable us to focus on our organic growth strategy, aided by funding with long-term retail deposits and the PRA waiver for Vehicle Finance. An important new aspect of this framework is shown here is the group intends to target over time a CET1 ratio of approximately 20%, with an optimized capital stack, including AT1. We are, as shown earlier in the presentation, well positioned in large growing addressable markets, where we have strong competitive advantages and aided by the rollout of our new IT platform, will deliver good receivables growth going forward as demonstrated in 2022. Dividends. The Board has previously stated and said it would move towards a payout ratio of circa 40% of adjusted earnings from full year 2022 onwards. This we have done today early, given the strength of the group and its balance sheet, with a total dividend per share of 15.3p representing a dividend per share growth of circa 28% year-on-year. Finally, our priority in 2023 is to grow our receivables organically. But if the group has surplus capital, the board will consider bolt-on acquisitions to boost growth and of course, one-off returns of capital to shareholders. Turning to the outlook on Slide 31. The strong momentum the group delivered during the fourth quarter of 2022 has continued in 2023 with asset quality remaining high. In 2023, the group will prioritize organic growth with receivables growth accelerating for full year '23 versus full year 2022. The group will continue to invest in its operational capabilities with a similar investment spend compared to 2022, meaning group costs are planned to be broadly flat year-on-year. The group also plans to deliver a stable net interest margin profile in the full year 2023 as a result of the debt being replaced by deposit funding. Over the medium term, the group will deliver strong receivables growth underpinned by a strong and well-capitalized balance sheet. This will allow the group to offer a dividend policy, which pays out 40% of adjusted earnings in the form of ordinary dividends and with the potential of further capital returns if capital cannot be allocated to organic growth. Thank you for listening. We'll now take questions, which will be run by our moderator.

[Operator Instructions] We will take our first question from James Hamilton from Numis.

And 3, if I may. I've observed a couple of competitors in the motor market have talked about an increase in arrears and related to the performance on notebook. And I noticed your statement that you say you've seen no signs of deterioration. So please, can you just confirm that there is no deterioration in the motor book? Secondly, in Q4, the annualized growth rate in cards was 41% and motor was 22%. Can you comment on how so far '23 looks compared to Q4 around '22? And finally, and apologies all. I note that the balance of gross receivables that are in Stage 3 declined to 24.6% as of December, down from [ 27% ] at the first half. Could you please comment on that optical improvement in credit quality?

Thanks, James, and I'll answer questions 1 and 2, and Neeraj can talk in the detail about question 3. I mean yes, I remember that I saw Close Brothers to happen. Some challenges in their motor book but I have to say we've seen absolutely no deterioration in our book. In fact, if anything, there is getting better, which I think is a reflection of something [indiscernible] in this presentation, namely writing near prime business. So we've not seen any deterioration. And in terms of the second question, how are cards growing, obviously, it's -- and add also the motor vehicle loans. We've seen a continuation, frankly, of what we were seeing in the fourth quarter. And excuse in the part, if anything, a slight acceleration of the motor vehicle loans. So we are still seeing very strong demand in those areas. I hope this answered those questions. Neeraj, do you want to talk a little bit about the Stage 3. You want to talk about that?

Yes, sure. Thanks, James. On the Stage 3 point, it kind of evidences 2 things. One is that the total amount of receivables that are in that kind of last stage of impairment have reduced, which aligns with the experience we're getting on the quality of books as they develop. At Page 1, there were no changes to some of the overlays that were also included in our figures at that time. And those overlays have come through during the second half of '22, as we had pointed out. And I think we did state at H1 that until we saw more evidence of the improvement to the book, we would hold on to those particular overlays, which were affecting the Stage 3 element and release them as we saw that improvement. And clearly, we have now seen that improvement. This is also, again, a function of the fact that as the back book which holds most of the Stage 3 coverage comes off our books and is replaced by the better quality business that we're writing, we would expect Stage 3 percentage to continue to draw.

[Operator Instructions] We'll move on to our next participant Corinne Cunningham from Autonomous Research.

A few questions from me, please. The first one was just on the drivers behind the average balance increase in the card portfolio. I noticed you said that spend was up 6%, but the book was up more than that. Is that reflecting a longer repayment time? Or is this, again, linked with the shift of the type of customer that you're targeting? And the second one was on margins. And I just wondered why you were not a bit more confident about perhaps the NIM increasing in 2023 given the switch to what should be cheaper deposit funding? And then the last one was just on the reserve releases and how that interacts with I suppose, a general expectation of economic downturns and a tougher cost of living.

Thanks, Corinne, for those questions. I'll take each one at a time. Your first question was around the cards balances and the way that they've developed. And there's 2 parts to that is that as we have focused more on or better quality customers, they generally have higher limits in place and the lower credit quality customers have very low limits. And what we're starting to see is obviously, the utilization starting to go up. Many things have affected that the new business that we're putting on is of a much higher limit card that's been given to people than previous times. So utilizations are higher for that reason. All of these things are well within the affordability of the customs that we're taking on. And again, the function by which we are seeing our arrears rates falling as considerably as we've seen. So all those things together, point towards higher balance utilization and fully going forward of higher limits that have been given to our new customers as the lower limit lower-quality customers actually run off our book. So that's kind of the first function. On the margin side of the equation, the issue is 2 things. One is that the amount of business that is moving to lower deposit costs is in terms of its weighted average isn't as large as the current book that we already have that is funded by deposits. And also that the deposits going forward obviously, will become more expensive because of the base rate increases and also the fact that the quality of our customers means that our gross margins are lower than they would have been in the past due to that risk reduction. So all those things being equal, the fact that we're saying that our risk-adjusted net interest margin is remaining flat is probably in line with your view that it's actually improving. And your final point on reserve release, obviously, reserve releases have been a function of the pandemic generally as well as, to some degree, the increased inflation environment that we saw start last year. Those are obviously being removed on the basis that have had no effect on our book. And we continue to move to a more model-driven approach to all of our impairment provisioning going forward. However, we do have to bear in mind that models cannot take into account everything that happens in the world. And sometimes we do have to put management overlays in place to stay on the prudent side of that provisioning. I hope that answers your questions.

It does. And on the management overlay, do you have a management overlay at the moment?

We have -- yes. We always have a management overlay for macroeconomic environment type issues. I don't think we said that exactly what it is, but it is in particular to that.

Thank you. It appears there is no further questions at this time. I'd like to turn the conference back to Mr. Malcolm Le May for any additional closing remarks. But I'm sorry, we have one more question. Are we okay to take another question?

Yes, yes, of course.

We will move on to Gary Greenwood from Shore Capital.

Johnny come lately this morning. Just in terms of the sort of growth prospects, you talked about the accelerating receivables growth through the year. I just wonder if you could sort of give us a feel for the sort of range of potential growth outcomes that you're looking at for the -- and how that balances between various different businesses?

Sure. I mean we got the consensus figures at the time.

I can share that with Gary afterwards, if that's okay.

We can send them through to you afterwards, Gary. Looking at the consensus, I think it would be an appropriate question predict precisely what the growth is going to be. Neeraj, you want to add a bit?

Sure. I mean the way that we see it and we do use the term accelerated growth for 2023, which does actually produce some drag to the profitability due to the Stage 1 impairment that would come with it. If we look at the consensus figures that are out there, which obviously we're not disagreeing with. But currently, the growth rate would have to be, in total, somewhere around 20% to achieve that balance growth. Some of that will obviously bring us back to where we probably ought to have been prepandemic had there not been a pandemic. And obviously, it also provides us a good opportunity to deploy our capital for a very good return for our shareholders. So ultimately, that is where we see the current view. It depends on how the macroeconomic position in U.K. develops over the rest of the year. But everything you've seen up until today, including the data on our own customer cohort, arrears rate, et cetera demonstrates to us that for us, not necessarily for the whole population, but definitely for our cohort of customers that this is a good time for us to grow at a slightly higher rate. And then obviously, that will not be maintained going forward. And we'll go back to more normalized levels of growth.

And then just a second one on recurring. You reported a return on required equity. I think it was at 22% or just over 22% for 2022. Obviously, it's just various moving parts. In 2023, you should have operational leverage given the pre-provision profit growth, but then you've got the drag from IFRS 9. So profit is probably going backwards in the short term, as you say, and then they say improve thereafter. You've talked about the sort of 5% to 10% impairment ratio which is quite a wide range. I'm just wondering if you've got an idea of where you think sort of where returns should settle over needing to.

Yes. So we expect our business based on the segment that we are providing finance to settle around the 20% ROE level. So I think that from our perspective, the ROTE, RORE and -- would be around that 20% level once we fully [ upload ].

Thank you. It appears there's no further questions. And I'd like to turn the conference back to Mr. Malcolm Le May for any closing remarks. Thank you.

Well, thank you very much, everybody, for dialing in. As you know, this will be my last set of year-end results that I will present, although, obviously, I'll be presenting the half year results, which are due for the end of July. I mean, in summary, I think, look, the year has started well. I think we've produced a good set of results. I think we are well capitalized for growth, as we've said. We've started a pilot on the second mortgage business. I'm pleased to say, actually, last night, we closed our first deal, which is a good start. And I hope to be able to give you more of an update on that, let me give you our half year results. But thanks again for your support and look forward to speaking to you in the near future. Obviously, if there are any further follow-up questions, Neeraj and myself are here to take those, so then has to contact us. Thank you very much for listening.