Shares in ‘challenger bank’ Virgin Money (VMUK) topped the FTSE 350 leader board on Tuesday, gaining 6.2% to 140p, after its first quarter trading update met market expectations.


The UK’s sixth-largest bank posted a 0.9% increase in deposits, to £68.1 billion, as ongoing Covid restrictions drove households to save rather than spend and businesses continued to amass cash balances.

Mortgage lending was subdued, easing 0.2% to £58.2 billion, as the group focused on margins and underwriting standards rather than volumes, a prudent policy given the lingering economic uncertainty.

Personal lending shrank 2% to £5.1 billion due to lower card spending and lower demand for personal loans, while business lending edged up 0.1% to £8.9 billion.

The bank’s net interest margin – the gap between the interest rate it pays on deposits and the average rate it charges on loans – was stable at 1.54%, more or less in line with the rest of the sector.

Meanwhile the bank described mortgage spreads as ‘supportive’, reflecting strong demand for housing ahead of the tapering of the Help To Buy programme and the end of the stamp duty holiday at the end of next month.


The bank said it had seen no ‘material changes in asset quality or specific provisions to date’, and only a ‘very modest increase in arrears’ relative to the same quarter a year ago, meaning its provisions for bad loans were just 0.1% of its loan book compared with 0.68% last year.

However, some analysts were disappointed by the £49 million provision, equal to 0.19% of loans, which the bank took to offset claims for payment protection insurance (PPI), a liability which most banks left behind some time ago. It appears the late charge was the result of a higher level of conversion of information requests rather than any new and unexpected source of liabilities.

Analyst Joseph Dickerson at Jefferies noted the bank’s prudent approach to lending, and the fact that 98% of customers who had requested mortgage holidays had resumed their payments.

Meanwhile, with less competition for deposits, pricing and net interest margins were stable for the first time in several quarters.


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Issue Date: 02 Feb 2021