Corporate
Operational Performance
During 2007, our asset class management model has continued to bring focus and specialisation to our customer relationships. This approach has enabled us to selectively maintain lending growth. Pre-sell down lending increased by 30% and post-sell down lending has increased by 22% in the year. The recent market dislocation has not changed our long held strategy of lending through the cycle. As competition has lessened over the last few months, we have seen more opportunity to use our underwriting and pricing skills to capture additional market share.
Customer deposits increased by 12% to £44.1bn (2006 £39.5bn), reflecting a clear focus on raising quality deposits in competitive markets.
Our investment portfolio continued to contribute substantial revenues, in particular through strong realisations. Although current market conditions have made exits less attractive there is still significant long term unrealised value in the book as a whole.
Real Estate
Real Estate accounts for 29% (2006 31%) of our advances to customers and operates mainly in the property investment, property development and house building sectors. With the weakening performance of UK property as an asset class, we have been very selective when considering new business, focusing primarily on long standing proven relationships. Our commercial real estate exposures are underwritten primarily against the quality of the tenant covenant, which include strong underlying cash flows of the businesses to which we have lent, and in addition are secured on the value of good collateral. New business is well spread across the UK, and risk adjusted returns are improving.
Commercial
Commercial is our traditional lending business which accounted for 24% (2006 25%) of our advances to customers. It is principally focused on relationship banking for UK businesses with annual turnover greater than £1m. During 2007, we have developed our operating model and launched a suite of competitive and attractive banking products to serve as a key differentiator in the market place. The Entrepreneur Challenge, a recent competition to find some of the most exciting and aspirational entrepreneurs across the UK, is a good example of an initiative supporting this reinvigorated approach. It is successfully generating leads and building relationships with a large number of high quality prospects, as we seek to challenge the long held dominance of the Big Four in England and Wales. Consequently, we are gaining momentum in terms of our market coverage.