Mortgage lending takes hit at Virgin Money
LENDER VIRGIN Money, which is in the process of rebranding its Yorkshire Bank and Clydesdale businesses to Virgin, said the UK banking market faces competitive pressures and uncertainty over the final Brexit settlement.
The bank revealed a hit to mortgage lending amid a difficult market and intense competition. The group, formerly known as CYBG, reported a 0.8 per cent fall in mortgages to £59.6bn in the final three months of 2019.
It said the first quarter drop was expected as it focuses on higher growth areas, such as business and personal lending, and attracts more savings business.
The group saw customer deposits rise 1.6 per cent to £64.8bn during its first quarter.
Business lending also surged 2.5 per cent to £8.1bn, boosted by customers switching from Royal Bank of Scotland after it took a slice of the part-nationalised lender’s fund aimed at increasing competition in Britain’s banking sector.
However, Virgin Money said the switching demand from RBS customers was weaker than expected.
Chief executive David Duffy said: “In a difficult market, our own performance has remained on track and we continue to make strong progress on our ambition to disrupt the status quo.
“We are attracting relationship deposits and delivering growth in customer balances across business and personal, while maintaining our discipline in a competitive mortgage market.”
He added: “While sentiment improved following December’s election result, the UK banking market continues to face competitive pressures and uncertainty over the final Brexit settlement.”
The owner of Yorkshire and Clydesdale banks, which became Britain’s sixth-biggest bank after CYBG bought Virgin Money in 2018, said the banking industry still faces uncertainty over the terms on which Britain will trade with the European Union after Brexit.
The bank, which had its market debut in 2016, has gone through a rebranding since the takeover, betting on the high profile brand of Richard Branson’s Virgin empire to challenge larger rivals such as Lloyds, HSBC and Barclays.
The group, which assured investors in November that the worst of an industry-wide scandal of mis-selling payment protection insurance was behind it, said costs relating to the mishap were in line with its provisions.
Net interest margin (NIM), the difference between what banks earn from loans and pay for deposits, was unchanged at 160 basis points, and the lender said it continues to target a NIM for the year of between 160 and 165 bps.
Analyst Gary Greenwood at Shore Capital said: “Having initially rallied sharply in the aftermath of the election result in December, Virgin Money’s shares have since retrenched and are
now trading back around their pre-election level.
“We think this is unjustified given that the outlook for the UK economy is now arguably better than it was previously. In addition, we continue to see significant scope for self-help from merger-related cost savings, with upside potential to consensus earnings forecasts in the medium term.”
Mr Greenwood reiterated his positive stance on Virgin Money shares and recommended that investors buy the stock.
KBW analysts said the update was “somewhat lacklustre”.
“The challenge is that while management talk the talk, business performance is more in line with a traditional incumbent,” KBW analysts said in a note.