Virgin Money profits lift off as bank hails ‘market-beating’ product growth

● Earnings up 28% to £273.3 million as mortgages and retail deposits increase

Shares in Virgin Money jumped 5.7 per cent yesterday as the Edinburgh-headquartered challenger bank hoisted the total dividend 18 per cent following double-digit rises in mortgage balances and retail deposits.

Virgin Money chief executive Jayne-anne Gadhia said the lender had generated marketbeating growth across its core products last year, with mortgage balances up 13 per cent and retail deposits 10 per cent.

It contributed to the bank increasing its underlying pre-tax profits 28 per cent to £273.3 million in 2017, with total income up 13.5 per cent to £666m.

“It’s true we are meeting or beating our targets and that feels good, and I think that is in the share price (reaction)”, Gadhia told The Scotsman. The shares rose 15p at 279.5p.

Gadhia added: “We continue to experience robust customer demand and stable customer behaviour in a resilient housing market, and we expect to maintain double-digit returns in 2018.

“We definitely don’t see any macro-economic worries that would temper the housing and mortgage market. That’s strong and resilient at the moment.”

Gross mortgage lending lifted to £8.4 billion in the year, giving Virgin Money a 3.3 per cent share of the UK mortgage market. However, Gadhia said she was prepared to see this share reduce rather than just chase volume if already competitive lending competition intensified.

Virgin Money’s credit card balances rose 24 per cent to £3bn in 2017, with most of the growth coming from customers who already had deposit accounts.

Bad debts went up to £44m from £38m, but that was in line with higher revenues, Gadhia added.

Net interest margin – the difference between what the bank charges borrowers and pays savers, and a crucial reference point in the industry – was 1.72 per cent as previously guided.

The bank, set up by Sir Richard Branson and which now has 3.34 million customers, pushed into small business banking in January with an SME savings account that is targeting some £5bn of deposits within five years.

Gadhia said Virgin Money planned to set up a current account for smaller businesses “by the end of 2018”. Virgin is also investing heavily in a digital bank it expects to launch next year.

Ian Gordon, banking analyst with broker Investec, commented in a note: “Virgin results day – another beat. Virgin remains our top pick in the UK bank space.”