Co-op Bank posts loss as mortgage competition bites

People walk past a branch of the Co-Operative Bank in central London

LONDON (Reuters) - Britain's Co-operative Bank's losses narrowed in the first half of 2019, but warned its profitability was under strain due to intense pricing competition in the mortgage market.

The lender posted a statutory pre-tax loss of 38.5 million pounds for the period, compared to a 39.5 million pound loss the previous year.

Co-op Bank warned competition in home loans and interest expenses incurred from issuing debt had squeezed its margins, and that they would fall further in the second half of the year.

The lender's net interest margin - a key measure of underlying profitability - fell 25 basis points to 1.83%, compared to 2.08% the previous year.

Co-op Bank has been working to turn around its finances since its near-collapse and rescue by a consortium of U.S. hedge funds in 2017.

With one-off costs stripped out - including hefty ongoing IT costs - the bank still posted an underlying loss of 2.8 million pounds, as its operating expenses exceeded its income.

This compared to a 11.2 million pound profit for the same period the previous year.

Chief Executive Andrew Bester said the bank was focusing on cutting costs to return to profit, adding that the bank was targeting "moving to sustainable profits from 2021 and beyond".

The bank reported a capital ratio of 21.9%, down from 22.3% a year ago, but said it would exceed expectations for the full year with a ratio at around 20.5%. It also said it would deliver a cost to income ratio above its expectations at less than 110%.

Co-op Bank said it would look to grow its business lending division after winning a 15 million pound grant from a competition fund.

(Reporting by Iain Withers, editing by Sinead Cruise)

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