Yahoo Finance Three Key Risks For CYBG PLC (LON:CYBG) You Should Know
The banking sector has been experiencing growth as a result of improving credit quality from post-GFC recovery. Economic growth impacts the stability of salaries and interest rate level which in turn affects borrowers’ demand for, and ability to repay, their loans. As a small-cap bank with a market capitalisation of UK£2.71b, CYBG PLC’s (LON:CYBG) profit and value are directly affected by economic activity. Risk associate with repayment is measured by the level of bad debt which is an expense written off CYBG’s bottom line. Today we will analyse CYBG’s level of bad debt and liabilities in order to understand the risk involved with investing in the bank. Check out our latest analysis for CYBG
Does CYBG Understand Its Own Risks?
CYBG’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. If the bank provision covers more than 100% of what it actually writes off, then it is considered sensible and relatively accurate in its provisioning of bad debt. With a bad loan to bad debt ratio of 130.25%, the bank has cautiously over-provisioned by 30.25%, which illustrates a safe and prudent forecasting methodology, and its ability to anticipate the factors contributing to its bad loan levels.
What Is An Appropriate Level Of Risk?
CYBG’s operations expose it to risky assets by lending to borrowers who may not be able to repay their loans. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. When these loans are not repaid, they are written off as expenses which comes out directly from CYBG’s profit. Since bad loans make up a relatively small 0.50% of total assets, the bank exhibits strict bad debt management and faces low risk of default.
How Big Is CYBG’s Safety Net?
CYBG profits from lending out its various forms of borrowings and charging interest rates. Deposits from customers tend to carry the lowest risk due to the relatively stable interest rate and amount available. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. Since CYBG’s total deposit to total liabilities is within the sensible margin at 73.00% compared to other banks’ level of 50%, it shows a prudent level of the bank’s safer form of borrowing and an appropriate level of risk.
Next Steps:
CYBG’s acquisition will impact the business moving forward. Keep an eye on how this decision plays out in the future, especially on its financial health and earnings growth. The list below is my go-to checks for CYBG. I use Simply Wall St’s platform to keep informed about any changes in the company and market sentiment, and also use their data as the basis for my articles.
Future Outlook: What are well-informed industry analysts predicting for CYBG’s future growth? Take a look at our free research report of analyst consensus for CYBG’s outlook.
Valuation: What is CYBG worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether CYBG is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
