Virgin Money frets over low rates and delays loans to small firms

VIRGIN Money today warned its profit margin could be lower in the second half and put off the launch of lending to small business as a result of the vote to leave the EU.

“It does not make sense to go into a new asset class at a time when there is uncertainty in the economy,” said Jayne-Anne Gadhia, chief executive of the challenger bank.

The bank has built its business around mortgages, credit cards and savings so far.

“I was very much a supporter of Remain,” she added. “And initially I was very gloomy about the result.

“But then I realised it was not going to go away and we had to work out how to make the most of it. We must not end up with a self-fulfilling prophecy.” Virgin tweaked its guidance for its net interest rate margin (the difference between what it pays to savers and charges lenders) from “about 1.6%” to “up to 1.6%” in the second half.

Gadhia said this would happen as a one-off if base rates are cut as expected next month but would not alter the overall outlook for the year.

That helped to push the shares up 6%, or 15.3p, to 260p. But they are still 30% down since polling day.

Gadhia said the bank had decided not to make any forecasts for 2017.

“We just don’t know how other banks are going to react as a result of lower interest rates for longer in terms of how they price things and go for market share,” she said. “We haven’t seen any change in behaviour by our customers.

“They are still spending on credit cards and, if anything, mortgage demand is stronger with people wanting to complete more quickly.

“We are still attracting 50,000 new customers a month.”

Gary Greenwood of Shore Capital said: “The fundamental attraction of the group is its high level of operational gearing, reflecting infrastructure that can support a much larger balance sheet and customer base than it currently operates with.” RBS and NatWest have written to nearly 1.3 million business customers warning them they may start charging them for holding money on deposit

rather than paying them interest.