Lending fell by 0.8%
Virgin Money UK has reported a 25% fall in profits for the six months to March 2023, citing an increase in impairment charges for bad debts and higher investment costs.
The bank’s statutory profit reduced to £236 million from £315 million a year ago, primarily reflecting the higher impairment charge of £144 million compared to just £21 million of the previous year. Underlying profit before tax was also 16% lower compared to a year ago.
Overall lending shrank by 0.2% as mortgage lending fell by 0.8% to £57.7 billion due to lower market activity.
“Over the last six months, the economic backdrop in the UK has been subdued, with several economic indicators forecast to remain weak in the near term before improving into the financial year 2024,” David Duffy (pictured), chief executive at Virgin Money, commented.
“During the first half of our financial year, the Bank of England’s Monetary Policy Committee have progressively raised the main policy rate further. Swap rates have been volatile throughout the period, as market sentiment has been impacted by challenges at Silicon Valley Bank and other US regional banks, as well as some European banks.
“Recent rate rises and ongoing inflationary impacts have seen affordability tighten for many UK businesses and individuals, and the group remains ready to support our customers as required. Pleasingly for now, the number of customers in financial distress remains low, but we continue to expect arrears numbers to increase as the credit cycle normalises and have increased our provision coverage during H1.”
Riz Malik, director of Southend-on-Sea-based R3 Mortgages, noted that Virgin Money is taking precautions for a possible increase in arrears and expected credit loss.
“Other banks and lenders will be doing exactly the same as they plan for the worst,” Malik said. “Unless there is a reversal in interest rates or the UK economy receives a major stimulus, turbulent times lie ahead.”
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