Directors' report

Chairman and Chief Executive's introduction - Outlook

It is widely anticipated that the economic conditions for the year ahead will be difficult and that the residential housing market will be adversely affected, despite the recent cuts in interest rates. In these circumstances we would expect arrears to eventually rise.

However, in our core buy-to-let lending, we see that rents are continuing to rise and that tenant demand remains very strong, with recent surveys of private property investors showing that they remain committed to maintaining or expanding their portfolios. Within our specialist markets, some competitive pressures have eased and we will seek the opportunity to rebuild our margins to offset the increased costs of funding whilst maintaining our overall credit quality.

The wholesale financial markets may be subject to further shocks and consequent turbulence and we will continue to exercise great caution in our approach to both funding and liquidity. The rate at which we can grow will depend on the rate at which we can fund the business both through our retail savings deposits and via the wholesale markets. Both of these have shown strong growth in the first few weeks of this year.

The Board believes Bradford & Bingley has the brand, the market positioning, the expertise and the policies in place to respond well to these conditions.