Corporate
Prospects
The dislocation in financial markets is expected to continue to shape our UK and European markets in 2008 and reduce the supply of corporate credit. As a result, asset margins have increased recently but asset growth will be slower.
In 2007 we took advantage of excellent market conditions, particularly in the first half, to realise substantial gains from our investment portfolio. Such opportunities are likely to be much more restricted in 2008 and, currently, we expect a lower level of investment realisations.
The corporate sector in the UK remains relatively under geared and companies are generally well placed to service increased debt costs. Our commercial property portfolio is expected to continue to perform relatively well, partially reflecting our preference for incremental growth in Europe. In an environment where commercial property prices are expected to remain under pressure our primary focus on cash flow based property transactions, with collateral valuations as support, will continue to drive our risk based decisions.
The tough economic climate is likely to see a rising trend in impairments, but we expect this to lead to only a modest increase in impairment losses in 2008.
Overall, we anticipate slower asset growth in 2008 and a higher proportion of originated assets will be held on the balance sheet than in previous periods, when the sell down market has been more active.