28th Jul 2020 10:24
(Alliance News) - Virgin Money UK PLC on Tuesday said trading in its third quarter was in line with internal expectations.
During the period, the midcap lender said mortgage and personal lending fell, but it saw an uptick in business lending due to the UK government's lending scheme introduced to support company's hurt by the Covid-19 pandemic.
Personal lending slipped 2.7% over the third quarter to GBP5.2 billion, with lower credit card balances blamed for the dip.
"The impact of lockdown has led to much lower spending on revolving credit facilities and lower personal loan demand, although as expected balance transfer lending balances have remained more stable - at about 65% of cards balances," Virgin Money said.
Virgin Money's mortgage portfolio reduced 1.0% to GBP58.9 billion from GBP59.5 billion at March 31. The decline was "expected" the lender said, with "little activity" in the new purchase market given the impacts of lockdown with limited physical surveys possible. New-to-bank re-mortgage activity also was lower given social distancing restrictions and subdued consumer confidence.
Business lending improved 5.7% on the second quarter to GBP8.8 billion. Which was driven by support for customers through UK government-guarantee lending schemes including GBP619 million of Bounce-Back Loans on the balance sheet at end June and GBP248 million of Coronavirus Business Interruption Loan Scheme advances.
Customer deposits rose 4.8% over the third quarter to GBP67.7 billion, reflecting lower consumer spending under lockdown.
Chief Executive David Duffy said: "I am pleased with the way the Group has performed during the pandemic. In a severely disrupted environment we are delivering on what we set out in May; to safeguard the health and well being of our colleagues, customers and communities while protecting the bank.
"Our third quarter financial results reflect lower demand from consumers due to the pandemic, but strong demand from businesses for government-supported schemes, with the group further increasing its provisions to reflect the uncertain economic outlook while maintaining a focus on margin, cost and capital management."
Virgin Money's margins came under further pressure in the quarter, with its net interest margin slipping to 1.47% from 1.63% at the end of the second quarter.
The drop, Virgin Money said, reflects the recent Bank Base Rate cut to 0.1% and the associated timing mis-match between asset and deposit repricing, as well as a temporary NIM drag from the cost of holding excess deposits.
Looking forward, however, the lender expects a bounce in the fourth quarter and is still guiding for its NIM to end financial 2020 between 1.55% and 1.60%.
Virgin Money ended the quarter with a CET1 ratio of 13.3%, which improved from 12.9% three months earlier.
The lender noted it has not yet seen any significant credit losses, but has upped its credit provisions to GBP584 million from GBP542 million due to an increase in card payment freezes.
"This ensures the group remains prudently provisioned for the economic environment," Virgin Money added.
The lender continued: "The group has set provisions based on cautious economic assumptions, is preparing assiduously to manage higher levels of customers in financial difficulty and continues to closely monitor the performance of its portfolios."
Shares in Virgin Money UK were 2.8% higher in London on Tuesday morning at 100.20 pence each.
By Paul McGowan; [email protected]
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