6th May 2020 09:58
(Alliance News) - Virgin Money UK PLC on Wednesday reported an interim loss, as the bank upped it credit loss provisions and saw income suffer from margin pressure.
Shares in the lender were 6.0% higher in London on Wednesday morning at 75.55 pence each.
Virgin Money was known as CYBG until the end of October 2019, changing its name as part of a rebranding following the purchase of challenger bank Virgin Money for GBP1.7 billion in October 2018. It also owns Clydesdale Bank and Yorkshire Bank.
In the six months to March 31, Virgin Money recorded a GBP7 million pretax loss compared to a GBP42 million profit in the same period a year before. Underlying profit slipped 58% to GBP120 million from GBP286 million.
Virgin Money upped its impairment losses to GBP237 million from GBP173 million a year before. Included in this is a GBP146 million impairment charge for expected losses from the Covid-19 pandemic.
Partially offsetting these hits was a 24% decrease in operating & administrative expenses to GBP537 million.
Net interest income was down 18% year on year in the first half to GBP671 million from GBP820 million. Total operating income slipped 17% to GBP767 million.
Chief Executive David Duffy said: "The Covid-19 outbreak and its impact on the nation's businesses and consumers has markedly changed the operating environment, driving an increased impairment charge against future loan losses and a reduction in underlying profitability. While we delivered a resilient performance and continued to make good progress on our self-help strategy in the first half of the year, our primary objective now is safeguarding the health and well-being of our colleagues, customers and communities while also protecting the bank."
Total customer lending growth was broadly flat over the first half at GBP73.18 billion from GBP72.99 billion at the end of September. Mortgage lending was down slightly to GBP59.52 billion, but Business lending and Personal lending offset this, growing 5.7% and 6.2% to GBP8.33 billion and GBP5.34 billion, respectively.
The lender's net interest margin worsened to 1.62% in the first half versus 1.71% the year before but improved slightly from 1.61% in the second half of financial 2019, ending September.
Customer deposits ended the first half at GBP64.65 billion, up 1.4% from September 30.
Duffy continued: "We enter this period from a position of strength, with a defensive loan book and resilient capital position, meaning we are well-placed to help our customers and colleagues through the crisis. We have rapidly adapted our operations, products and services, and I am extremely proud of how our colleagues have risen to the challenge and continued to provide the very best support and advice to our customers. To date we've directly supported over 100,000 retail customers and around 4,500 businesses. We continue to work closely with government, regulators and the industry to ensure we maximise our support to customers and the UK economy."
Virgin Money's CET1 ratio slipped to 13.0% from 13.3% at the end of September, as the lender's risk-weighted assets grew 4.7% to GBP25.17 billion.
Virgin Money said the economic outlook for the UK is "clearly evolving" and "remains hard to predict with any certainty".
However, Virgin Money now expects its net interest margin for financial 2020 to be between 155 and 160 basis points.
"We anticipate a structural step down in the NIM in the third quarter due to the adverse mismatch in timing between asset repricing and deposit repricing, but thereafter our ongoing balance sheet optimisation strategy should support a relatively resilient NIM," the bank added.
Virgin Money expects operating costs below GBP920 million for financial 2020, following the decision to curtail some Transformation programmes.
The lender plans to return to a sustainable dividend policy and will take a further decision on shareholder payouts at the end of financial 2020.
Duffy said: "Although the full impacts from the COVID-19 outbreak will take time to emerge, I'm confident that our agility, digital capabilities and focus on disrupting the status quo will make us stronger and well-equipped to support changing customer needs and play our part in the UK's economic recovery."
By Paul McGowan; [email protected]
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