Virgin Money shares slide as profit falls by a quarter on higher provisions for bad loans
Virgin Money’s pretax profit slipped by a quarter in the six months to March as the bank set aside more funds to cope with expected impairment losses.
Richard Branson’s challenger bank recorded £144m in provisions for bad loans compared to just £21m in the same period last year. Its shares were trading over five per cent lower early on Thursday.
The company expects an increase in arrears and has updated its macroeconomic forecasts, forcing it to set aside more funds.
However, chief executive David Duffy said “we’re not seeing any material deterioration in any of the asset categories in our books. What we’ve done is update our macroeconomic models, which you’re required to do, and most of the other banks did in the last quarter.”
The updated model anticipates more stress in the economy, but “we have not seen any stresses to date in our books,” Duffy continued.
Expenses also increased by five per cent to £477m, reflecting “investment in service” and mortgage digitisation.
These costs meant that pretax profit fell 25 per cent to £236m even as revenue was higher thanks to interest income.
Virgin Money’s net interest margin – the difference between what it pays out to savers and receives in interest payments – expanded to 1.91 per cent, helping interest income to increase nine per cent.
The bank also saw overall deposits increase by 2.6 per cent to £67bn, noting that 72 per cent of these were insured.
It increased its interim dividend to 3.3p per share, up from 2.5p last year. The company expects to announce a buyback later in the year following Bank of England stress tests.
Duffy said: “More people are choosing to bank with Virgin Money. While the past six months have seen turbulence in the economy and in the financial system, we have continued to focus on our target areas, growing customer numbers and deposits thanks to our new and existing digital products.”
“As the UK economy stabilises in the months ahead, we have a high degree of confidence in our long-term plans,” Duffy continued.
Over the full year Virgin Money expects its net interest margin to remain constant at around 190 basis points.