Virgin Money UK PLC says “we know things may get more difficult for many of our
The lender said it has not yet seen any significant problems but is “preparing assiduously to manage higher levels of customers in financial difficulty”
() has increased its provisions for bad debt from the coronavirus pandemic lockdown in the past quarter, though it said it has not yet seen any significant coronavirus-specific credit losses.
The renamed Clydesdale and Yorkshire Banks, which merged with Virgin Money two years ago, has updated its impairment model to incorporate more cautious economic scenarios and the 67,000 mortgage and 53,000 personal payment holidays it has granted.
This has resulted in a “prudent” £42mln net increase in its provisions, primarily in mortgages and personal banking, which it said is “based on cautious economic assumptions”, after taking £232mln of charges in the previous quarter.
The lender said it has “not yet seen any significant credit losses nor been required to make any significant specific provisions in relation to the pandemic impact” but is “preparing assiduously to manage higher levels of customers in financial difficulty and continues to closely monitor the performance of its portfolios”, with chief executive David Duffy saying “we know that things may yet get more difficult for many of our customers”.
Things were mixed for the lender itself in its third quarter to June 30, 2020, with the group’s mortgage portfolio down 1% and personal lending down 2.7%, while combined personal and business deposits increased 4.8% to £67.7bn and business lending grew 5.7% amid significant demand for the government-backed lending schemes.
The group’s net interest margin (NIM), the difference between rates on loans and savings, declined to 1.47% in the third quarter, down from 1.63% in the second quarter and 1.60% in the first. Management continues to expect a full-year NIM of 1.55%-1.60%.
Shares in the bank rose 3% to 100.1p on Tuesday morning, still down almost 48% since the start of the year.
Analyst Fahed Kunwar at Redburn said: “Virgin Money’s results today highlight the state of limbo the banks are currently in. Despite the country being in the midst of a severe recession, the scale of government support has meant there is little sign of borrowers defaulting on their loans.”
The analyst said investors will need to wait for the bank’s fourth quarter when the furlough schemes end to see just how serious the loan losses are, particularly on Virgin Money’s credit card portfolio.
“There were other positives for the bank today, particularly on capital as the regulators continue to take with one hand (confirming dividend payouts will be delayed until after 2020), but give with the other, as Virgin Money had its regulatory minimums lowered,” Kunwar said.
–Updates price, adds broker comment–
Read More: Virgin Money UK PLC says “we know things may get more difficult for many of our