Virgin Money swings back to black amid brighter outlook for economy
Virgin Money, the Glasgow banking group formerly known as CYBG, has returned to profit after setting aside less for bad debts amid signs of an economic rebound.
The group, which is undertaking a major rebrand from its historic Clydesdale and Yorkshire bank names, reported pre-tax profits of £72 million for the six months to the end of March, compared with losses of £7 ma year earlier.
On an underlying basis, interim pre-tax profits more than doubled to £245 million from £120 ma year ago.
Profits were boosted as impairments for bad debts fell to just £38m from £232m a year earlier at the height of the initial pandemic lockdown, which offset lower retail banking income due to rock-bottom interest rates.
But it did not follow the lead of bigger banking rivals Lloyds Banking Group, owner of Bank of Scotland, and HSBC in releasing some of the mammoth cash put by last year for loan losses, instead maintaining provisions at £721m.
It took a further £59m for the payment protection insurance (PPI) scandal after a higher level of internal reviews into complaints led to payouts.
The group also missed out on the mortgage boom that boosted many of its rivals in the first quarter amid the stamp duty holiday, with its mortgage balance remaining flat at £58.3 billion.
Chief executive David Duffy told investors: “Virgin Money had a strong first half. We doubled underlying profit compared to last year and returned to statutory profit. The quality of our loan book remained resilient in the period, and we’ve continued to support customers and look after our colleagues and communities, while safeguarding the bank.
“We are cautiously optimistic about the improving outlook as the impact of the vaccination programme in the UK delivers positive revisions to economic expectations.
“We’re continuing to manage through what is still an uncertain economic backdrop, but the bank is well placed, with a strong balance sheet, and through ongoing strategic delivery we have a clear path to long-term, improved sustainable returns,” he added.
John Moore, senior investment manager at wealth management firm brew in dolphin, said: “Virgin Money’s results largely mirror Lloyds’ last week, with the bank rebounding to profit, maintaining a steady net interest margin, and registering lower impairment charges.
“Virgin is also making progress on its transformation strategy and the share price has duly recovered from the lows of late last year. The question is what the next big move will be – whether that takes the form of accelerated investment in digital and fintech, buying in small books of mortgages and loans, or consolidating and cost-cutting within the existing business.”
Virgin Money said it chose to focus on profit margins rather than chasing higher mortgage sales, but has started to see lending pick up, with lending jumping 50 per cent between February and March.
Personal loans dropped 3.2 per cent to £5.1bn in its first half as households reined in spending and saved instead, with business lending down 0.6 per cent at £8.9bn.