Virgin Money business drive overshadowed by home truths

Comment Martin Flanagan

No good deed goes unpunished. Challenger bank Virgin Money might have expected plaudits for unveiling a bid to shake up the small business banking market. Instead, the shares lost ground yesterday because the group also revealed pressures at its existing meat- and- two- veg: mortgages.

The market liked the idea of Virgin broadening its offer with an SME ( small and medium- sized enterprise) savings account in the New Year.

And the targets are not small potatoes. Virgin Money has set its sights on securing £ 5 billion of deposits from SMES within five years, which would make a dent on the 80 per cent market share in small business activities currently enjoyed by the Big Four banks.

But it was a curate’s egg for the market, as Virgin Money chief executive Jayne- Anne Gadhia said that the lender’s annual share of gross mortgage lending would be at the lower end of its 3 to 3.5 per cent forecast. She blamed competitive pressures.

Virgin also flagged a likely fall in net interest margin ( NIM) in 2018 to between 1.65 per cent and 1.7 per cent. It is the classic banking conundrum: pushing for loan growth, but maintaining profitability.

The City had been spoilt: Virgin’s loan growth has been stellar, but until now the bank has defied gravity by doing it with stable NIM and low impairments. Yesterday reality called. The market applauds the lender’s ambition to leverage its strong position in its existing business into the SME space, but was more disquieted that the existing business is under greater pressures than thought.

Strategic drive is good, but problems on the mortgage doorstep are worrying.