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UK's OSB flags $40 million exposure to potential third party fraud

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(Reuters) - Britain's OSB Group said on Wednesday it had "very recently become aware of potential fraudulent activity" involving a third party it provides funding lines to and had hired forensic experts Smith & Williamson to investigate.

"Until the investigation has progressed sufficiently we will not know to what extent the receivable has been impaired," the company, which was formed by the merger of OneSavings Bank and Charter Court Financial Services, said on Wednesday.

OSB Group said it could face a maximum potential credit loss of 28.6 million pounds ($39.8 million) as at 31 December 2020.

"Whilst I am disappointed at the very recent discovery of a potential fraud at one of the non-bank lenders we provide secured funding to, we believe that this is an isolated incident and are committed to expediting our investigation," OSB's chief executive Andy Golding said.

OSB, which disclosed the incident along with a trading update after markets closed, said it expects its underlying net interest margin (NIM) to return to pre-pandemic levels in the current year, but forecast a marginal rise in its cost to income ratio.

Across the world, the industry has been struggling with a hit to NIM - the main measure of a lender's profitability - due to lower interest rates as central banks attempt to reboot pandemic-hit economies.

OSB, which bought rival Charter Court Financial Services in 2019 to become one of Britain's biggest specialist lenders, postponed its 2020 results by three weeks to April 8, saying the incident has caused a short delay.

($1 = 0.7184 pounds)

(Reporting by Muvija M in Bengaluru; Editing by Lawrence White and Alexander Smith)