TSB staff to share £28m windfall after bank's profits rise 169%

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High street lender TSB is set to pay out £28 million to its 7,700 employees after an impressive jump in pre-tax profit last year.

The bank said statutory pre-tax profit rose 169% to £182 million in 2016 from £67.6 million a year earlier, amid an 11.4% jump in lending to £29.4 billion, and a 13.6% rise in customer deposits, which also reached £29.4 billion.

When stripped of one-off items and currency effects, pre-tax profit rose 68.1% to £177.7 million.

TSB is now preparing to shell out £28 million to its 7,700 employees - a £2.5 million rise on the bonus award paid out last year.

Most will receive a payout equivalent to more than six weeks' pay or 12.5% of their basic salary. 

Chief executive Paul Pester said: "When we launched TSB back in 2013, we set out to do our bit to break the stranglehold of the big five banks and bring a different sort of banking to the UK. Three years on, we've shown that a bank focused on serving local communities can really thrive."

He added: "We've grown at twice the pace we aspired to back in 2014. More people chose TSB than ever before in 2016 and we are now Britain's most recommended high street bank."

TSB was spun out from Lloyds Banking Group in 2013 and then taken over by Spanish rival Banco de Sabadell in 2015.

But TSB warned of a "significant" hit to profits in 2017 as it faces soaring costs, low interest rates and an ongoing drop in some of its lending portfolios.

The lender is still working to completely separate itself from Lloyds Banking Group's IT system, and expects outsourcing fees to increase by £100 million this year.

It said profits would be affected by those costs, as well as rock-bottom base rates and the continued roll-off its Mortgage Enhancement and Whistletree Loans portfolios.

But the group said its IT charges are expected to be short-lived, as TSB plans to migrate to its own platform built by Sabadell later this year.

TSB said: "In the meantime, we are continuing to invest in both our digital offering and branch network, to make sure customers experience excellent levels of service however they choose to bank with us.

"We were delighted to launch the first of our new, purpose-built, flagship branches in Birmingham and Aberdeen at the end of 2016."

TSB added that it was also keeping an eye on Britain's economy but was "mindful of the challenges ahead", including uncertainty surrounding Brexit.