Good morning, everyone, and thank you for taking the time to join us for our 2023 interim results presentation. I'll let you read this slide to explain the basis of reporting in today's presentation. Reference is made to statutory results, which reflects both continuing and discontinued operations, as reported in our interim report for the six months ended June 30, 2023. This slide shows the running order for today. I'll comment on our performance and strategic priorities before Rachel covers off the financial results, and then I'll come back to talk about the outlook at the end before we take questions. When we presented the group's 2022 results at the end of March, I commented on the inflationary pressures that were mounting for households and businesses.
Inflation has been more persistent than expected. The Monetary Policy Committee has continued to take action, with the latest rate rise last week, taking bank base rate to 5.25% for the first time in 15 years. We're therefore operating in a higher interest rate environment than we'd expected or planned for. The market now expects rates to be nearing their peak, although clearly, households and businesses are yet to feel the full impact of those rate rises already made. As a result, we've continued to take a prudent approach to assessing customer affordability and remain focused on supporting our customers. We remain confident that the Group's track record and resilience will continue to stand us in good stead. You will recall that we defined our new vision, purpose at our first Capital Markets Day almost two years ago.
Our purpose, to help more consumers and businesses fulfill their ambitions, has guided us in supporting our customers and business partners during these challenging times. We also articulated that the many opportunities that the group had to grow and add scale in our specialist lending businesses. Our growth has been executed effectively for 2.5 years now, and in that time, our lending balances have grown by 45%. That's just under GBP 1 billion of net new lending growth. We are well positioned to continue growing profitably. We've refocused the group and are benefiting from established positions in our markets. Despite the volatility of recent times, we've been flexible in adapting to market conditions, and we see further opportunities grow strongly in what are large addressable markets. As we explained in March, all of our deposit funding is from retail customers.
96% of those balances are now fully covered by the Financial Services Compensation Scheme. We've continued to grow our deposits at record levels to support our lending ambitions. We have a strong capital base that provides capacity for significant further lending growth. We issued GBP 90 million of fixed rate callable subordinated notes, which qualify as Tier two in February. We're well positioned to deliver an attractive return on capital as we continue to execute our growth strategy, scale the business in line with our medium-term target. Building on the momentum of the last two years, we have laid the foundations for a strong full year. Some key performance metrics for the first half are shown on the slide.
Lending balances of GBP 3.2 billion were up by 14.8% in the last 12 months and up 8.2% since the end of 2022. Deposits from customers of GBP 2.6 billion were up 15.6% in the last 12 months and up 5.3% since the end of 2022. In the first six months, we raised and retained over GBP 1 billion of deposits from customers. Our net interest margin reduced to 5.4% from 5.7% at the same point last year. We view this as the low point. Net interest margin will increase again as the yield curve flattens.
We had expected to see a reduction in the period as a proportion of lower risk prime lending grew in our consumer businesses and due to the natural time lag in passing through rate increases to those businesses. Rachel will comment further on operating income growth and margin shortly. On a statutory basis, our cost-income ratio of 56.9% was relatively flat compared to the first half of last year. Rachel will show a more detailed slide explaining the underlying improvement in our cost-income ratio, excluding non-recurring costs. On the back of strong lending growth and cost management initiatives, our profit before tax pre-impairments of GBP 39.3 million was 14.6% higher than for the first half of 2022. The board has approved an interim dividend of 16 pence per share, in line with last year's interim dividend payment.
Having delivered significant lending growth since the start of 2021, demonstrating our ability to capture the opportunities in each of our businesses, I am confident that we will deliver a significant increase in profitability in the second half of the year. In this next phase of executing our strategy, we need to be optimizing for growth and be even more focused on what our strategic priorities are. Further growth of the lending portfolios in these segments, with the associated income increase, coupled with a continued simplification and streamlining of the Group's operating model, will further improve our cost efficiency. We've defined three strategic priorities for the Group: to simplify, enhance customer experience, and leverage networks. Our technology capability is a key enabler for us and will continue to strengthen our technology platform.
By doing so, we remain well-positioned to deliver market share gains and grow in our specialist lending segments and ultimately deliver on our return on equity target. We made significant progress against these three strategic priorities in the first half. We have completed the simplification of our business portfolio, and we're on track to close the operations of DMS fully. We've taken further action to digitalize and automate processes and have reduced the number of documents and letters we print and post to customers. We've also renegotiated a number of contracts with suppliers and business partners. We've reduced our property footprint further. Having already exited buildings in Rotherham and Cardiff in the second half of last year, in April, we closed one of our buildings in Solihull, consolidating into the other building, which has become our new head office.
Our head office building has been refurbished to support hybrid and collaborative working, and the further structural changes we made in the first half of the year to simplify our operating model. We've continued to focus on opportunities for cost removal and avoidance, and are on track to deliver GBP 4 million of annualized savings by the end of the year. In customer experience, we've continued to evolve and improve the self-service options available to customers, and our customer service is increasingly digital. Over 75% of our Retail Finance customers are registered for our online account management service, reducing the need for them to call us. Our Open Banking payment option continues to be well received by customers, with a growing number electing to make push payments to us by digital banking, rather than having to take the time to provide us with their payment card details.
We're now operating all collections activity and Vehicle Finance on a single modern platform, removing complexity within the business. The platform has improved workflow management and automation. Recognizing that customers were reluctant to lock their savings away for longer periods as interest rates in the market were rising, we extended our savings product range in the period to provide customers with a broader range of shorter duration, fixed-term accounts. We also introduced the Confirmation of Payee service so that customers can confirm that the name of the person they are looking to send money to matches the name on the bank account they are transferring money to, reducing failed payments and manual processes. We have a track record of achieving high levels of customer satisfaction.
Our Vehicle Finance and Retail Finance teams were both recognized by Feefo and awarded their Platinum Trusted Service Award. Our savings team received Feefo's Trusted Service Award. In Commercial Finance, the team was recognized as the Asset Based Lender of the Year at the Real Deals Private Equity Awards. In leveraging networks, the group is built on the importance of strong relationships with business partners. We work with retailers, car dealers, brokers, private equity groups, accountants, and professional advisory firms. We help our partners satisfy the finance needs of their customers and clients, and we continue to strengthen our distribution network in each of our consumer finance businesses in the period.
We launched a pilot of our mobile digital buy now, pay later proposition AppToPay, with a small number of existing retailers in Q2 , delivering a solution that required no additional IT development by our retail partners. In Vehicle Finance, stock funding, we're now working with a broader range of auction houses and dealers, and we're increasingly seeing the level of repeat business grow in each of Real Estate Finance and Commercial Finance. We'll continue to leverage our partner relationships and networks to originate new business, to expand our product offerings, and to take market share. Technology is a key enabler in delivering our growth efficiently. We've invested in our technology platform in recent years and will continue to do so. A number of enhancements are noted on the slide.
This has allowed us to simplify the group and deliver better customer service by increasing digitalization, replacing legacy platforms, and launching new products. We are able to integrate easily into our partners' sales, platforms, and processes, allowing us to provide automated credit decisions and digital credit agreements. This is one of the key reasons for our market share gain in Retail Finance. Our platform is scalable and has supported growth in our loan book of 45% and our deposit book of 33% in the last 2.5 years, and we have significant capacity to support our future growth ambitions. Let me just turn to the performance of each business unit. Some key data points are on the slide, and more information is in the appendix to the presentation. Three of our businesses grew lending strongly in the period.
Retail Finance's lending balances grew by 12% and vehicle finances by 18%. As a result, Retail Finance's market share grew to 12.9% and vehicle finances to 1.3%. Real estate finances balances grew by 10%, and the loan-to-value on the portfolio now is at 56%. Commercial Finance's lending balances dropped as we took a cautious approach to onboarding new clients in a challenging environment. There was an increase in the cost of risk in Commercial Finance due to us recognizing a loss in a long-running problem loan case. As you know, the team has a fantastic record in managing the portfolio exposures, including this loss on that one case in the first half, the cost of risk since launching the business in 2013 is 0.6%.
Commercial Finance's net revenue margin and income grew strongly in the period as the lending portfolio is variable rate priced and linked to the bank base rate. Overall, the group delivered against our strategic priorities. We've continued to expand our distribution networks, grow new lending and total lending balances, and increase market share in our consumer businesses. The group made good progress in the first half of the year, and we've again seen the benefit of having a diversified, yet focused, specialist lending portfolio. With that, let me now hand over to Rachel to take you through the financial outcomes in more detail.
Thanks, David. Morning, everyone. I will start with a brief overview of the income statement on slide 12. As you've heard from David, our growth plan continues to be executed effectively, and we delivered a 10% increase in operating income in comparison to the prior year. With the backdrop of high and sustained inflation and the growth in their lending balances, operating costs increased by 9.7% on the same period last year. However, there was a number of non-recurring items included in that headline number, and I will provide some further detail on this later in the presentation.
Our strategy of adding scale to our specialist lending businesses, alongside simplifying the group and driving operational efficiency, has delivered a significant increase in profit before tax pre-impairment, a 14.6% increase over the prior year and 39.3% since half one, 2021. Continuing profit before tax of GBP 16.5 million was down 3.5% on the same period last year, but was impacted by a loss of GBP 7.2 million in Commercial Finance. Without this loss, continuing profit before tax would have been GBP 23.7 million, a 38.6% increase on the same period last year. Net interest income in the first half at GBP 81 million is a 10.8% increase on the prior year, with a 16.3% increase in average lending being the key driver of this performance.
The raising of new Tier two debt earlier in the year has impacted net interest income with an increased cost of GBP 3 million. This additional cost is outweighed by the increased capital it provides to support our growth and suite of medium-term targets. As David has already mentioned, we are operating in a higher interest rate environment than we had expected and planned for, and as previously indicated, while the base rate continues to rise, we suffer from a lag in passing through these rate increases, in Retail Finance in particular. We have been proactive in managing the pass-through of rate increases to both lending and deposit customers and have achieved a relatively neutral position in relation to NIM, with a 10 basis point contraction.
As I just mentioned, the increased Tier two in both coupon cost and quantum has reduced net interest income. The impact on NIM is 20 basis points when comparing to last year. Overall, our NIM has contracted by 30 basis points to 5.4%. However, we expect this to be the low point for the year, and NIM has already moved up to 5.5% on a July year-to-date basis. Furthermore, with the yield curve predicted to flatten by the end of the year, we should see margin expansion into 2024. On a statutory basis, operating costs were up GBP 4.5 million. The cost-income ratio was largely flat on the same period last year. However, as we have reported in previous periods, there are a number of non-recurring costs which distort the underlying performance in relation to operating costs.
Excluding these non-recurring costs, the cost-income ratio reduced by 1.7% - 54.8% period-on-period. One of the key drivers of meeting our medium-term target of a return on average equity in the mid-teens is by delivering growth in income whilst keeping cost growth lower, i.e., widening the jaws. As you can see from the waterfall on slide 14, the impact of this widening of the jaws delivered a reduction in the cost-income ratio of 5.1% from income growth, less the volume-related cost increase of 1.7%, a net reduction in cost-income ratio of 3.4%. We are living in a high and persistent inflationary environment, which manifests in pressure on salaries and other costs. The impact of this is an increase in the cost-income ratio of 2.6%.
We continue to find opportunities for cost optimization through our Project Fusion. We delivered an additional GBP 0.8 million of savings in the first half and are on track, as David said, for the GBP 4 million of annualized savings by the year end from this program. Asset quality continues to be resilient within our consumer finance businesses. Retail Finance has delivered sustained low levels of arrears as a result of the strategy to focus on higher quality prime interest-free customers. Vehicle Finance near-prime arrears have reduced to levels similar to pre-pandemic. Combined with the new prime segment, arrears levels have significantly reduced in the half. As the proportion of prime grows, this trend will continue.
Cost of risk for the first half of 2023, at 1.5%, was slightly elevated as a result of a GBP 7.2 million loss on a long-running problem debt case in Commercial Finance. The circumstances around this particular case were unique, with a lessons learned exercise confirming no similar concerns across that portfolio. As David mentioned earlier, the track record of Commercial Finance since its inception, including this loss, is only 60 basis points. On a more positive note, as indicated at the 2022 year-end presentation, Vehicle Finance cost of risk reduced significantly to 2.4% from a high of 8% in the first half of 2022. This is a result of the credit tightening actions taken throughout 2022 now being reflected in the IFRS 9 modeled output.
We expect the cost of risk to settle into a range of 3%-4% in the next few years. It is dependent on the mix of prime and near-prime lending. Impairment provisions increased by GBP 1.5 million in the first half. If I can point you to the waterfall on Slide 16 for some further detail. The impact of growth in net lending increased provisions by GBP 11.6 million. This was offset by a release of GBP 3.2 million from improving macroeconomic assumptions and other movements of GBP 6.9 million. We do continue to retain a management overlay of GBP 2.8 million for affordability due to the current economic climate. Coverage ratios decreased marginally to 2.5% and still remain prudent.
At a summary level, the balance sheet grew, with total assets increasing by 5.1%, driven by an increase in loans and advances to customers of 8.2%. Loan-to-deposit ratio increased by 3.1% as we funded loan growth from surplus liquidity held at December 2022 for the business finance pipeline. Tangible book value per share increased by 2% to GBP 17.46. We continued to deliver strong momentum in customer lending in the first half from established positions in our specialist lending market. Net loans and advances increased by 8.2% in the first six months of the year, with strong growth being delivered in both our consumer divisions and Real Estate Finance as a result of leveraging current and new distribution channels and products.
Retail Finance grew 11.9%, Vehicle Finance by 18%, and Real Estate Finance by 9.5%. Commercial Finance did see a contraction in lending balances of GBP 60 million, reflecting seasonality and a cautious approach to new clients in a challenging economic environment. We are a diversified business and have proven our ability to be flexible in adapting to volatile market conditions, and we see further opportunities to grow strongly in our specialist lending markets. Aligned with our growth strategy, we have consumed capital in the first half to fund this growth. CET1 ratio reduced by 1%- 13% through a combination of capital generation from profits, net of dividend, the unwinding of IFRS 9 transitional relief, and growth in lending and associated RWAs.
We issued GBP 90 million of new Tier two to support growth and efficiency in the capital stack in the period, and we redeemed the existing GBP 50 million Tier two with a 2023 call date. This additional Tier two provides us with sufficient capital for our planned growth. We will have no requirement to go back to the market to raise any further until the call date in 2028. Our capital ratios remain significantly above the regulatory minimums. Total funding increased by 6.2% in the half to support the growth in lending. Retail deposits grew by 5.3% in the period, mainly through growth in access and ISA products. To remind you, around 96% of these are fully protected by the FSCS.
Our full range of products enabled us to actively manage shifts in customer behavior away from shorter dated and cheaper noticed accounts to longer dated and more expensive fixed term accounts by us increasing our levels in access accounts. Cost of funds is of course impacted by the increases in base rate, and we continue to actively manage the pass-through of these increases to both deposits and lending customers. Lastly, all regulatory metrics remain strong and significantly in excess of regulatory minimums. Let me now hand back to David to take you through the strategy and outlook slide.
Okay, thank you, Rachel. Let me just make a few comments on the outlook for the group and our core areas of focus as a team. Our vision, purpose, and strategy is well understood and embedded across the group, with clear opportunities to help more consumers and businesses fulfill their ambitions and grow our lending further. We have built a track record of capturing those growth opportunities in each of our specialist lending markets. We need to continue doing the same in a prudent manner as we move forward and scale the group further. We've defined our Optimizing for Growth Strategic Priorities so that we maintain focus on simplifying the group, enhancing customer experiences, and leveraging our networks.
Under Simplify, we'll continue to take action this year to streamline our activities, and are progressing additional work streams to deliver the GBP 4 million of annualized savings by the end of the year from our cost optimization program. We'll further enhance the experience of our savings customers with the launch of our new digital savings app, allowing customers to manage their account on the device of their choice when it suits them. That will reduce the need for many customers to call us for account and balance information. On leveraging networks, we'll continue to work proactively with existing business partners to reach our end customers and also to grow our distribution network further, we will continue to make enhancements to our technology platform as we expand the business and drive further cost efficiencies. We've laid the foundations for delivering a strong performance for the full year.
We're a focused specialist lending business, and a diversified and resilient model remains a key strength. We have proven ourselves to be flexible and disciplined when helping customers and managing our loan portfolios. We're a growth business with further opportunities ahead of us, and we have strong capital and liquidity positions to help us to continue to capture those opportunities. Having defined our optimizing for growth strategic priorities, we remain laser-focused on driving continuous improvement and leveraging technology to achieve our growth ambitions. With a growing balance sheet, we expect a significant increase in profitability in the second half of the year. We'll be holding a Capital Markets event on Wednesday, eighth November. The event will have two objectives.
Firstly, to set out clearly the path for delivery of the medium-term targets and secondly, to allow the V12 Retail Finance team to outline the strengths, capabilities, and further opportunities for the business... We will, of course, send out invitations well ahead of time. We've made significant strategic progress and demonstrated our ability to execute our strategy and grow. We are benefiting from the actions we've taken to simplify the group over the last two years, and from the technology investments we have made that allow us to deliver enhanced customer experiences, a broader range of products, and to drive further efficiencies. As we continue to expand and leverage our distribution networks, we are confident in delivering sustained growth in our chosen markets. Continuing to capture growth is key. Since the start of 2021, the team has grown lending balances by 45% and deposit balances by 33%.
As a result, we are on track to deliver all our medium-term targets. We look forward to sharing more insights on the delivery of those targets at the Capital Markets Day on the 8th of November. That brings the presentation to a close, and we'd be happy to take any questions you may have. Thank you.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question over the phone, please signal by pressing star one on your telephone keypad, and please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. You may also submit your questions on the web platform. Again, please press star one to ask a question. We will take our first question from Robert Sage from Peel Hunt. Please go ahead.
Yes, good morning. Thank you very much for the presentation. I've got a couple of questions. The, the first one, looking at the GBP 7.2 million one-off charge in Commercial Finance, I was wondering whether you could comment more widely about the lumpiness of your exposures within this particular portfolio. What perhaps the average balance size might be, whether or not there could be many other exposures of the same sort of materiality as the one that you provided against today. The, the second question, and I apologize if this is slightly remedial in nature, is that there is about GBP 15.4 million of revenue showing in the other division, and maybe I've missed it, but I'd, I'd be very grateful if you could just sort of talk around what that is, and how that number might trend in future periods.
Okay, thank you for the questions, Robert. Morning. On the, on the first point, the Commercial Finance, the, that level of balance is not actually untypical. I think we've, we've indicated for a period of time that, you know, balances were in the high single-digit millions, so I, I, I don't see it as being, you know, out of line with the sort of average exposure. Your, your second question actually broke up slightly for me, but I'm, I'm not sure if, if Rachel caught that.
Yeah. You're asking about the GBP 15.4 million in, in other? That's a combination of two things. That would be excess income coming from our internal FTP process, plus also Bank of England interest, and the reason why it would be significantly higher would be just the rate environment that we're in.
Okay. If the rates stay up here, we would imagine that that might simply recur at around the current level?
Yes, but the, you're, you're picking that up from the segmental analysis, but obviously it's-
Yeah.
Yeah.
Yeah
report that at group level as a total number.
Thank you.
Thanks, Robert.
Thanks.
Our next question comes from Pearlie Mong, from KBW. Please go ahead.
Hello, thank you for the presentation. Just two questions. One is around Stage 3 balances. If I look at your business finance Stage 3 balances, that seems to have gone up quite a lot in the half, especially, well, I guess Real Estate Finance is a little bit lumpy, you know. I think it went from GBP 30 million to GBP 17 million, and then back up to GBP 40 million, but Commercial Finance seems to be quite, quite a bit higher. Just wondering what, what is driving that Stage 3 balance, because it doesn't sound to me that you're seeing a material credit deterioration in your portfolio, generally speaking. That's the first question, and second question is on cost.
I think in your presentation, you talked about Project Fusion delivering GBP 0.8 million of cost savings in half one, but you would expect GBP 4 million annualized by year-end. Just wondering, so it sounds like there's a sort of step up in cost savings in half two. If you could just give us a bit of color on where that might come from in terms of, you know, what's driving that, say, GBP 3 million of cost savings, that would be really helpful. Thank you.
Thanks, Pearlie. I'll, I'll probably pick up both of those. The Stage 3 balances in Commercial Finance and REF, I mean, as you say, REF is a bit lumpy. There is one case in there that has moved into Stage 3 from the period before December 2022. On Commercial Finance, again, there is stress in Commercial Finance in terms of the clients that we're dealing with, and we do get companies going to administration. There are two new companies that went into administration in the first half. One of those is already collected out in July, and the other one is practically collected out in July with no issues on full collection of those debts.
It's just, you know, ultimately, what's happening with the market, that we are seeing companies that we're providing funding to going into administration, and therefore, we're having to collect out on them. Hopefully that answers that question.
Yeah.
The second one on costs, when we talk about the GBP 4 million annualized rate, that's from the point of the 1st of January 2021, when we started the program. If you recall, at the end of last year, we had GBP 2 million annualized, and we're confident of getting to the GBP 4 million by the end of the year. It's still on the same things that we've discussed before, which is operating model changes, property, obviously, we moved into York House, which is our one of our buildings in Solihull, and, you know, just supplier contract work that we're doing. We were talking about the annualized it from when the program started at the beginning of 2021.
Okay, sorry, my mistake then. I presumably cost savings, half one, half two would be sort of similar level of magnitude, maybe a little bit higher in half two. Would, would that be fair?
Maybe a little bit higher. Yeah, that's fair.
Okay. Thank you.
Thanks, then .
Thank you. As a reminder to ask a question over the phone, please signal by pressing star one, and you may also submit your question over the web platform. Our next question comes from Alexander Bowers from Berenberg. Please go ahead.
Good morning. Three questions from me. First one, just you grew market share in both Retail Finance and Vehicle Finance in the period. What sort of market share do you believe is achievable in each of these segments, sort of the medium to long term? Secondly, on AppToPay on the pilot, do you have any initial early customer feedback or views on the level of demand from AppToPay from the launch? Lastly, you mentioned sort of a cautious approach to new clients in Commercial Finance. Are there any types of business or particular industries you're looking to reduce exposure to? Thanks.
Okay. Thanks, Alex. On the, on the first question, on market share within the consumer finance business, so that 12.9 in Retail Finance, at the end of the period, is still when we have one of the or the second largest competitor in the market, but they are gradually coming out of the market. Our expectation is, in the sort of medium term, you would be getting into mid to high teen % in Retail Finance. On, on Vehicle Finance, you know, second-hand finance at the point of sale, clearly, it's a much broader market now that we've expanded into the prime segments. Against that 1.3 level, you would be not far off doubling in the medium term.
That's, you know, consistent with what we've said about having done the product expansion, continuing to extend our distribution, we will start to see continued market share growth. You're probably in the 2%-2.5% range in the medium term there. Both, both still have good opportunities to grow. On AppToPay, listen, what we've done is a pilot, it's with 27 existing retailers across different market segments and sectors. Our key focus at this stage is just making sure technology works, process works for our business partners, as well as the end client. Too early at this stage to say at what point would you be comfortable or have enough learnings to either continue rolling out the proposition as is, or whether you may need to make any adaptations.
The one thing I think probably worth highlighting is we took a little bit longer to launch the pilot than we'd expected, but that's 'cause our in-house IT development team found a solution that re-required a bit more development work on our side, which removes the need for any technology development work with the 27 partners. That means that once we are comfortable and we want to extend distribution, we can do that very easily by just adding it as a drop-down list option into the tool system of our partners. Very early stages, low pilot, just until we learn, make sure we are very comfortable before making a decision on further rollout. In Commercial Finance, I mean, there are no specific sectors actually that we have made any decision over the last 6 months to step away from.
I mean, as Rachel says, it is clearly a very volatile market. It's also a very competitive market. I mean, this business does well, almost, you know, when there's actually restructurings taking place or acquisitions taking place, and we can support and provide working capital. It's probably more the, the fundamentals of the businesses that we're supporting, what their growth trajectory and profitability and returns trajectory is, that drives our decisions rather than any specific decision we have taken about market segments.
Thank you.
Thanks, Alex.
Our next question comes from Rob Murphy from Edison. Please go ahead.
Hi, guys. Can you hear me?
Yeah.
Yes. Hi, Rob.
Great, thanks. Just coming back to the costs again, and the operating leverage. It looks like the underlying cost growth is about 6.5%. I just, obviously, that's including the benefit, that's before the fusion benefit. Is there any reason to expect any kind of different trend into the second half? Secondly, on the one-off costs that you had, what were those, and is there anything also likely in the second half on those? That's the first question. I've got a follow-up on something else.
Yeah. In terms of first half versus second half underlying cost, I wouldn't expect it to be materially different. Hopefully, we will be exiting such a high inflationary environment, then we should be seeing a better run rate into 2024. In relation to the one-off costs, I think most people are aware that we continue to look at different opportunities, and they come with associated costs. We can't probably go into too much more detail on that. We're probably not expecting similar costs into the second half, but there may be some.
Okay, great. Thanks. Just going on to slide 16 on the IFRS 9 provision, the GBP 5.5 other release there. Could you maybe give a bit more color about what's driving that? I, I, I also note your... Is that linked to the motor, to the Vehicle Finance, where you're seeing this sort of transition to the prime, or is, is there something else happening there? Thanks.
Yeah, it really is lots of different things. I think there's a footnote on the slide. This is stage movements, which would have had an impact in relation to Vehicle Finance, because obviously, the models themselves would have been pushing too much into Stage 2, so we would have seen things come back out of Stage 2 into Stage 1. There are just the normal maturities, curing, that goes on within the IFRS 9 model. There's nothing.
... There's nothing hidden in there, that it, it is probably lower than we would or more of a benefit than we would expect because of the stage transformation between Stage 2 and Stage 1 in Vehicle Finance.
Great. I just have one final thing. I don't know if it's, on, on your economic scenarios, I think you have a chart that says HPI% for the house. Is, is that right, that, that scale, or is it, is it the absolute house prices? There's something that doesn't look quite right there. That was, that was all I just wanted to point out.
You know-
I think you've got positive house price growth, which doesn't feel like what you've got actually assuming.
No, so on slide 32, Rob.
Yeah, it's at the end on there.
Yeah. No, the HPI is for the third and sixth columns, which are negative.
Okay, maybe I've got something wrong. Okay, that's fine.
Yeah.
Yeah.
All right. Thanks very much.
Thanks, Rob.
Thanks, Rob.
Thank you. We'll now take our next question from Gary Greenwood from Shore Capital. Please go ahead.
Oh, hi. Thanks for taking my questions. I've got two, please. First one was on Vehicle Finance. I noted one of your peers recently stated they'd seen an increase in frivolous claims, which had cost them a little bit of money. I was wondering if you'd seen anything similar within your Vehicle Finance business. The second question was just on dividend policy. Obviously, you held the dividend in the first half of the year. I think you said you're still looking at the 25% payout. I was just wondering if you'd consider reviewing that dividend policy, either to put a progressive overlay in place or alternatively, cut the dividend altogether and buy back stock given where the rating is. Thanks.
Yeah. Thanks, Gary. On, on the first question on Vehicle Finance claims, listen, we've seen an uptick, but from a very low level. Actually it's relatively material, the cost of handling those claims. Nothing to call out specifically, and it's nothing that would lead us to have to call it out as a significant item. It's already all in our operating cost line. On the dividend policy, yes, you're right. You know, it's been held at the GBP 0.16, broadly the 25%, in line with the policy. Listen, I think, despite the fact that the statute profit has reduced slightly, I think you can take it as a sign of our confidence in the full year.
We have not, at this stage, made any decision, clearly to change the dividend policy. We have certainly heard and fed back and discussed with our board that some holders would have an expectation of some type of overlay or some progressive nature being built into the policy the next time it's reviewed. Nothing to say here and no, no decision made at this stage, Gary. Certainly we've been listening to the feedback we've had.
That's great. Thank you very much.
Thank you.
Thanks.
Thank you. Is there any other questions in the phone queue? I'll hand it over to Scott for any eventual web questions. Over to you, Scott.
Thanks very much for that. We've currently got no questions from the webcast today. David, hand back to you for closing remarks.
Okay. Thank you, Scott. Well, listen, thanks, everyone, again, for joining. Listen, I think we've demonstrated again the ability of the teams to capture the growth. You know, we still have relatively low market shares and probably bar Retail Finance at 12.9% in very large niche markets. We remain very confident, looking very much forward to the second half of the year, seeing a step up in the level of profitability that we're delivering.
You know, we're looking forward to being able to describe and talk you through on the eighth of November at the Capital Markets Day, the trajectory and the path and what needs to happen for us to consistently deliver our medium-term targets and deliver the mid-teenager returns that we've indicated within those. It will also be an opportunity for the broader Retail Finance management team to get visibility and for you to hear more about the strengths, capabilities, and further opportunities to gain market share in that business. You know, thank you. I know we'll be meeting some of you over the course of the next few days, look forward to talking then, and thanks for joining this morning.
Thank you.