Virgin Money profits hit by rising bad loan provisions

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Virgin Money has missed profit expectations as it made a bigger than expected provision for bad loans to account for rising credit card arrears owing to the cost of living crisis.

The challenger bank posted statutory profit before tax of £345mn in the year to September 30, down from £595mn in 2022 and below analyst forecasts of £430mn.

The hit to profits was largely because of a jump in the amount the lender had set aside for bad loans to account for rising arrears in its credit card business amid a gloomy economic outlook.

Virgin Money reported a credit impairment charge of £309mn, higher than market expectations of £282mn. The jump, which is an almost sixfold increase on last year’s charge of £52mn, comes after the lender updated its model for credit losses to reflect a deterioration in the economy and higher levels of customers indebtedness.

Virgin Money said it expected a “continued increase in arrears” in the next financial year, largely focused on its credit cards portfolio, which grew by 10 per cent this year as consumers turned to credit in the face of rising prices.

The FTSE 250 lender said the relief it had offered customers struggling to pay their credit card bills, such as an extension in repayment terms, had also increased in line with arrears.

The proportion of credit card balances reaching more than 90 days past due increased to 1.7 per cent, from 1.2 per cent the previous year, while the value of credit card balances having to be written off jumped to £116mn from £79mn over the same period.

The bank, which was created following a 2018 takeover by rival CYBG, said it would buy back up to £150mn of its own shares before May 2024. It said it planned to reward shareholders with a final ordinary dividend of 2p per ordinary share for the financial year.

Shares in Virgin Money have declined 16 per cent in the year to date as the sector was hit by fear of contagion following the collapse of Silicon Valley Bank and trouble at other lender including rival Metro Bank.