Virgin Money lending rises to £72.5bn in UK ‘recovery’

Virgin Money, the Glasgow-headquartered banking group formerly known as CYBG, said on Tuesday its customer lending rose 0.4% to £72.5 billion in its third quarter amid a “strengthening” economic environment as the group raised its net interest margin (NIM) guidance for the full year.

In a trading update for the three months to June 30, 2021, Virgin Money said its mortgage lending increased 0.7% to £58.7 billion, personal lending grew 2.5% to £5.2 billion driven by growth in credit cards, and business lending was 2.4% lower at £8.7 billion.

Overall deposits decreased by 0.8% to £68 billion “as the group continued to manage the deposit mix and reduce funding costs.”

Virgin Money said if the current strengthening in the economic backdrop persists it believes there may be an opportunity for a further reduction in its £678 million credit provision levels alongside its full-year results.

NIM — a key measure of a bank’s profitability– improved in Q3 to 168bps (Q2: 160bps) “benefitting from a lower cost of funds driven by improvements in deposit mix and repricing as well as higher hedge contributions, partially offset by a more competitive lending backdrop.”

Virgin Money said it expects NIM to be modestly ahead of 160bps for FY21, stabilising into Q4, “as wholesale funding costs and increasing competition offset the ongoing deposit repricing benefits.”

The group said: “The UK economic outlook improved further in Q3.

“The rollout of the vaccination programme and the easing of restrictions supported further positive revisions to expectations.

“Stronger GDP growth, lower unemployment, a robust housing market and greater consumer confidence are all positive indicators of the improving outlook for the operating environment.

“Overall, while risks remain from the increase in COVID case numbers driven by the new variants and the impact of the removal of Government support schemes later in the year, the strengthening backdrop gives scope for greater optimism about the pace of the recovery.”

Banking analysts at Citi wrote in a note: “A strong update across all areas … The provision reversals, better NIM (net interest margin) outlook and stronger cards growth also bode well for the large-cap domestic peers too.”

Virgin Money CEO David Duffy said: “Virgin Money performed well as our strategy continued to translate into improved financial delivery in a strengthening environment.

“We carried our momentum of relationship deposit growth into the second half, reducing our cost of funds. Our asset quality remained robust, while capital ratios improved further.

“The positive reaction to our switching incentives and product launches reflects our focus on transforming customer experience, backed by the unique advantages of one of the world’s most-recognised brands.

“We have also advanced our ESG agenda with our first greener mortgage product and sustainability-linked business loans.

“We have increased full-year NIM guidance and, while COVID continues to impact the near-term, we have a strong capital position and robust provisions.

“We see great opportunities from further developing our digital capabilities to deliver an improved customer experience and greater efficiencies.

“We are well placed to grow profitably next year as we play our role to support the UK economic recovery.”