Virgin Money set to roll out business banking service

● But lender takes stock market hit on shaved mortgage share guidance

Challenger bank Virgin Money unveiled a planned drive into the small business banking market yesterday–but one that was overshadowed by negative news on its existing operations.

Virgin Money’s chief executive Jayne - Anne Gadhia said the lender will launch a savings account for small and medium-sized enterprises ( SMES) in the New Year, paving the way for other products for business customers.

The bank ditched plans to target small firms in the wake of the Brexit vote, but now says it is confident enough to start again.

Virgin Money said it hoped to secure £5 billion of S ME deposits within five years. But shares in the bank shed about 5 percent as it also warned in its capital markets update that its share of gross mortgage lending in 2018 will beat the lower end of its previously guided range of 3 per cent to 3.5 per cent.

Compounding disappointment for the City, the lender also said that its net interest margin( NI M )– the gap between what it pays depositors and charges borrowers – would fall to between 1.65 per cent and 1.7 per cent next year.

On the business initiative, Gadhia said she was“delighted to announce the start of our journey into SME banking”. She said the new savings account for SMES “will enable us to start developing relationships with business customers and lay the foundations for potential broader future development in this attractive, but poorly served market.

“We start the next phase of our evolution from a very strong position.” Gadhia added that the Virgin brand had strong appeal to SME owners.

“The SME banking market is currently concentrated in the hands of four incumbent banks and there is an opportunity for a customer- focused disruptor to deliver better service and value for customers,” she said.

The bank said it would also roll out a new digital banking platform in 2019. Virgin Money said it hoped the new digital current account would get £ 5bn of customer deposits within five years.

“Traditional banks are investing in digital transfor - mation but are burdened by legacy systems; whilst digit al start-ups currently lack the customer base to disrupt the sector on any significant scale,” Gadhia said.

“Our end-to-end platform will enable us to capture market share by taking full advantage of our unique position and competitive advantages.”

Virgin Money said that despite its NIM contraction it remained largely on track to meet its full- year targets.

The bank said thee co nomy remained supportive of growth in loans, with low unemployment, a resilient housing market and “robust consumer demand and stable customer behaviour”.

Ian Gordon, banking guru at Investec, said the business and digital current account initiatives “offer hope of a sustained reduction in Virgin’ s cost of funds over time”. The shares closed down 14.4p at 260.6p.